And 20 Years After

The Soviet Union officially ended 20 years ago today.  There are two good articles in New York Times and Financial Times providing a retrospective of the past two decades.  Both are worth reading.  The Economist has provided a personal essay on this day.

An addendum to the Financial Times article is particularly interesting.  Having spent some of my youth in the Middle East, I am fully aware of the Oil Curse and its consequences.  It appears that current-day, oil-rich Russia is having to live with the same issue.

Role of resources: How the balance tilted when energy-abundant Russia ‘became too rich’ 

Among the biggest factors holding back the development of democracy in the former Soviet Union have been two three-letter words: oil and gas. 

Of the six post-Soviet republics deemed authoritarian by the Economist Intelligence Unit, three – Kazakhstan, Turkmenistan and Azerbaijan – have big hydrocarbon reserves. Russia, with the largest reserves, is a “hybrid” state, showing authoritarian features. 

All have to some extent suffered classic symptoms of the “oil curse”. Oil and gas revenues have enabled cronyist leaderships to establish or maintain firm rule, while buying off opposition by raising wages and pensions. Apart from Kazakhstan, which has carried out some market-friendly reforms, energy wealth has also stunted the growth of other sectors. 

Russia is perhaps the starkest example. Throughout the 1990s, when oil prices were low, Russia was a democracy, albeit a highly imperfect one. For the first three years of the last decade, under president Vladimir Putin, liberal reforms continued. “But finally oil prices rose and Russia became too rich,” says Nikolay Petrov of the Moscow Carnegie Center, a think-tank, “and the leadership decided there was no longer a need to undertake new reforms, as they enjoyed huge revenues coming from nowhere.” 

Oil and gas have played an important role not just in countries that possess them, but also as leverage Russia has used to maintain influence over neighbours that lack them. 

Ukraine, the biggest ex-Soviet republic by population after Russia, relies on cheap Russian natural gas to fuel its heavy industry. Twice since 2006, Russia has cut supplies in winter amid pricing disputes. In Belarus, smallest of the three Slavic republics, energy subsidies from Russia have sustained the autocratic Alexander Lukashenko in power. They have compelled him, too, despite a poor personal relationship with Mr Putin and Dmitry Medvedev, his successor as Russian president, to remain essentially a vassal of Moscow. 

Belarusian industry, like Ukraine’s, benefits from cheap Russian gas. Belarus also receives cheap Russian oil, refines it in two Soviet-built refineries and sells the products to western Europe for a fat profit. “Who knows how Ukraine or Belarus might have developed if Russia had not exerted such an influence using oil and gas,” says Mr Petrov. 

By the same token, however, the lack of energy revenues has prevented Ukraine’s leaders from establishing as heavy-handed rule as Moscow. Local analysts cite this as a key limiting factor on Ukrainian president Viktor Yanukovich’s attempts to create a Putin-style system. 

In Russia, meanwhile, parts of the political and business elite have realised that without modernisation to nurture other sectors, it risks the kind of economic stagnation it suffered in Soviet times. Mr Medvedev portrays himself as a reformer who will try to help Russia escape the oil curse if granted a second term as president next year. But oil revenues may yet help propel Mr Putin, currently prime minister, back to the Kremlin.