Barbarians of Oil by Sandy Franks & Sara Nunnally

Author:Sandy Franks & Sara Nunnally
Language: eng
Format: epub
Publisher: Wiley
Published: 2011-05-09T16:00:00+00:00

Russia: Calculating Oil Bear

While Iran’s relationship with oil and the United States is emotionally driven and based on mutual distrust, the former Soviet Union has been coldly calculating with its crude. It’s all about money and power.

Russia’s oil history is a long one, starting back in the second half of the 1800s. Its massive reserves quickly put the country at the forefront of the world’s oil production. In fact, it’s one of only eight countries outside of the OPEC cartel that has significant oil production.61 But Russia and OPEC are on opposite sides of the spectrum. Russia didn’t have the International Petroleum Cartel carving up its oil wealth. In the Russian oil industry’s heyday, from inception through World War I and up until the country’s civil war, Russia supplied half the world’s oil.62

During World War I, worldwide oil consumption climbed 50 percent, while damages from the war, coupled with the Bolshevik Revolution in Russia, pinched supply.63 But the oil producers were also sloppy. Whether through inexperience or ineptitude, Russian oil companies were slashing the lifespan of their oil fields. “All this pushed operating costs up sharply,” wrote Yergin. “Political instability discouraged the large new investment that was required. . . . Increasingly, Russian oil was a residual, to be bought when other petroleum was not available.”64

This situation wasn’t the straw the broke the camel’s back, and sparked the revolution, but it certainly provided ample opportunity for the revolutionaries to nationalize the oil industry in 1919.65 The state controlled everything, and the oil industry was compartmentalized, regulated, and tied to specific ministries which handled everything. Little control was given to the regions where oil was being pumped, and even less was given back to the people living in that region. In addition, little control went to the companies who previously held interest in the Russian oil industry. In the New York Times, Simon Bromley wrote:

Notwithstanding the British attempt to establish an independent state of Azerbaijan and Standard [Oil]’s contract with its government in 1919, Allied intervention during the Civil War failed either to overthrow the Bolshevik state or to reinstate Western (capitalist) property rights.66

This created a turbulent time for the Russian Oil Bear. Boycotts and other hostilities between international oil companies were to become commonplace. Internally, Russia was finding and producing more oil, but its insulation from oil majors made its technology second-rate.67 In other words, Russia’s plentiful supply of new oil that was easy to extract offset the decline of its poorly managed fields. The government did not invest in the industry as smartly as it should have. By the time the Oil Embargo and the OPEC oil price wars hit the West, Russia had become a net exporter. Higher prices, and lack of supply, made the oil industry pay off handsomely. Russia increased production significantly, particularly in Siberia, and it was this new oil production that in 1974 made Russia the world’s largest oil producer.68

Oil was money, and money was power, because it could buy arms. This was never

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