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The Russian Oil Drive

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The global powers are all maneuvering to secure sufficient “friendly” oil supplies. All economies are highly dependent on oil to even function let alone to allow for future economic growth. The Oil Shock of 1973, where OPEC hiked the price of oil to non-friendly countries, taught the world the extreme value of oil. However 1973 was not the official start of the Oil Drive. The Japanese likely started the unofficial oil drive when they expanded their empire focusing on oil and other resource targets. That led to Pearl Harbour of course. Many countries that didn’t start securing friendly oil back then are making up for that mistake now.

China is currently on a corporate spending-spree buying up stakes in oil companies all over the world. Huge trade surpluses for years finally give Beijing the economic power to focus on such key international acquisitions. The US initially developed a very close relationship with Saudi Arabia after the oil shock. What better to have the world’s undisputed highest oil reserves friendly to your country. However after the famous 9/11 terrorist attack on America the situation changed radically. Out of 19 hijackers involved in 9/11, 15 were citizens of Saudi Arabia while 2 more were from the United Arab Emirates. That, along with rising Saudi military power and the corresponding reducing reliance on America, was enough to seriously question the reliability of Saudi oil. That very large and sudden hole in the American oil strategy led some very talented men hired by Mr. Bush to make some drastic decisions. 5 years later the US has now “liberated” Iraq from the dictator the US supported to keep Iran in check. Of course the US used its unsurpassed military power to ensure a friendly future oil supply. There has been an oil rush on for many years now but only in recent years has it been so open and obvious.

Russia has also been very active in securing more international oil supplies. First consider Kazakhstan. It’s a little known country that on some lists has the 10th highest oil reserves in the world. Russia literally owns the pipeline currently used to export a substantial amount of the countries oil supplies. The country was a part of the old Soviet Union for many years and was highly ‘Russified’ during those years. Ethnic and cultural links are very strong. Dimitry Medvedev’s first foreign visit was to Kazakhstan; not Germany, the US or China. Kazakhstan, while being courted by Europe and China, is securly under Russian influence.

In fact much of Central Asia is facing increased Russian influence. China has been very actively working to wrest influence away for many years in this area and has been somewhat successful. Turkmenistan had a free gas line built to deliver natural gas to China. That actually forced Gazprom to increase the price it previously paid to import then resell Turkmen gas. It’s a nice situation when your pipeline is the only one available and Gazprom wasn’t above squeezing a little country like Turkmenistan. However given the recent Russian example in Georgia, where much of the country was destroyed despite very close relations with the US, Central Asia is now reconsidering unfriendly Russian energy policies. Central Asia may be currently under weaker Russian influence than in Soviet days but the future has Russia re-asserting strong influence in the region. China has a long way to go still here.

Libya is the next case to consider. After years of frozen international relations due to the Lockerbie bombing that Libya admitted to and paid almost 3 billion for, Muammar al-Gaddafi was very quickly a popular guy. France quickly signed a civil nuclear power sale to Libya that the US supported. Even the Euro Union talked of establishing normal relations, especially when it came to Libyan oil. The country has the even more oil reserves than Kazakhstan which puts Libya into the top 10 in oil reserves in the world. However Russia had been selling Libya military equipment on credit during the very long international isolation, in effect ensuring Gaddafi maintained control of the country. That line of credit, all $4.5 billion of it, was very kindly entirely forgiven by Vladimir Putin in April, 2008. What did Muammar have to do to have one of the worlds largest Visa bills completely paid off? Sign over development of his oil reserves to Gazprom of course! The US, Europe and China have effectively been shut out of another top 10 oil friendly supply. While Libyan oil will flow to Europe for sale, it will be under Russian state control.

Finally we can consider Nigeria, a country with very little previous foreign relations with Russia. While paying Gaddafi’s Visa bill Russia’s Gazprom had started preliminary talks with Nigeria about building a pipeline through Libya to Europe. At an estimated $13 billion dollars many would consider it a big deal. Why would Russia be suddenly interested in a huge investment in the war-torn and highly unstable country of Nigeria? Well Nigeria has more oil reserves than Kazakhstan as well! Another top 10 oil reserves country. It also has huge amounts of natural gas that Europe was eyeing to reduce the dependence on Russian natural gas imports. Since then Gazprom has signed further deals with Nigeria to explore 3 promising oil blocks in northern Nigeria. It is now very clear that Russia has the inside track on controlling Nigerian oil and gas supplies. Considering the late start for Russia in the Nigerian energy market compared to other countries Gazprom has hit a home run with the bases loaded.

There is little to doubt about why Russia is currently supporting Iran. Exporting nuclear technology that will provide the Iranians a source of weapons grade nuclear material, both plutonium and uranium, is quite possibly the highest level of technology transfer possible. Russian engineers have built one reactor for uranium that is just waiting for the right political environment to start now. Another reactor that will provide plutonium is also being built but is several years away from completion. Iran has more oil reserves than Iraq and sits at #3 in the world top ten list. Over the last 10 years Iran has purchased the majority of it weapons from Russia. T-72’s, Mig 29’s as well as the SA-15 surface to air missile defense system. In recent headlines however is the pending sale of S-300 anti-aircraft missiles to Iran. This top technology would very likely stop any Israeli talk of bombing Iran because of expected heavy losses of very expensive Israeli planes.

While Iran clearly runs a very independent political policy around the world it is very clear that Moscow has significant influence in Iran. The West has zero influence there. When calculating oil friendly reserves around the world the third highest reserves country Iran falls clearly under Russian influence.

So Russia has firmly gained direct production or distribution control of a very significant amount of the world’s oil and gas reserves. It also has developed very close relations with major friendly oil sources. Oddly however, Russia currently exports about 70% of its oil production to the rest of the world. Why is the country placing such a high priority on securing so much more international oil supplies given obvious oil wealth inside Russia? That’s the Oil Drive I mentioned. Early in Vladimir Putin’s leadership oil was identified as a critical national resource. Gazprom was built on basically state expropriated property from Yukos. This was the first step in securing Putin’s control over Russia internally. However the profits from Gazprom were so great that it didn’t take long for the Russian political elite, highly motivated by profits, to want to expand Gazprom’s reach into the rest of the world. The combined power of the Russian state supporting the development of Gazprom around the world has provided extraordinary results. Gazprom has grown exponentially in a few short years to be a dominant energy company around the world. While late to the oil drive Russia has been very successful.

Now Russia has become a major controller of oil supplies along with Saudi Arabia and surprisingly Canada. The world economies have been built up much more now than in the first Oil Shock in 1973. A similar political event today would be devastating to an industrialized nation. While talk of increasing use of renewable resources is printed in the headlines the truth is that the world economy will depend on oil for decades into the future. Russia’s successful Oil Drive has provided a strong political weapon for a country in desperate need of renewed strength. Saudi Arabia has used their political oil clout very softly over the years. The Russian style of politics is much more direct and in your face though. Europe has already felt not only one but two extra cold winters due to Russian politics cutting off natural gas supplies. Russia has also already worked with OPEC to reduce world oil supply and has openly talked of joining OPEC in some form in the future. Russia is ready, willing and able to use oil and energy supplies in world politics.

Russia has ensured a strong political future around the world with a fantastically successful oil drive. The Soviet Union may have collapsed but Russia is renewing it’s world power status for the foreseeable future.

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About Noel Trotsky

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    Everybody should love one another!!

  • Noel Trotsky

    I think people do love one another, but leaders of countries must try to build better futures for citizens. That means securing sources of a limited and very critical raw material for economic health.

    We love each other, but we love to have more also!