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March 26, 2022
Yet the Russian Federation—Russia—still looms over the newly independent states. It sprawls across the map, encompassing eleven time zones from Europe in the west to the tip of the Chukotka Peninsula in the Far East, just sixty miles across the Bering Strait from Alaska.
Three decades after the collapse of the Soviet Union, a new global competition between the United States and Russia has emerged—not the Cold War of history and nuclear doomsday, but still a cold war.
Over his two decades as president, Vladimir Putin’s great international project has been to reassert Russia’s sway over the rest of the former Soviet Union, restore Russia as a great power globally, build new alliances, and push back against the United States.
Oil and gas have been critical to Russia’s rebound and to the nation’s economy. They also provide a way for Russia to project power other than with military might.
The “obvious fact” is evident in the sheer scale and abundance of Russia’s energy resources. It is one of the Big Three of world oil production. It is the second-largest producer of natural gas (after the United States) and is still the world’s largest gas exporter.
This geological endowment gives Russia global presence. It undergirds its economic relationship with Europe and growing bonds with China.
Russia’s oil industry emerged in the nineteenth century both in what today is Azerbaijan, on the western side of the Caspian Sea around the city of Baku and northwest of there and, to a lesser degree, in Kazakhstan, on the eastern side of the Caspian.
In the civil war that followed their seizure of power in 1917, the Bolsheviks faced what they called a “fuel famine,” a daunting threat to their revolution.
By the early 1920s, the Communists were in control of the entire country. Over the next several years, the oil industry recovered and once again became a player in the global market.
Only in the late 1950s, well after the end of the Second World War, did the Soviet Union return as an oil exporter to the global market.
In response to the surging volumes of Soviet oil, the international companies reduced prices in 1959 and again in 1960.
By the beginning of the 1970s, the Soviet Union’s centrally planned economy was failing. It could not produce the goods that people wanted, and what it did produce was shoddy, except for specific sectors, mainly defense.
In 1985, Mikhail Gorbachev emerged as the new leader of the Soviet Union. Young and energetic, he was determined to reform the economy. But fate was against him.
Oil revenues could no longer mask the failures of the centrally-planned economy. “We were planning to create a commission,” remembered Gorbachev, “to solve the problem of women’s pantyhose.
It got worse. Oil production began to fall rapidly. In 1989, the chairman of the Council of Ministries bemoaned, “If there is no oil, there will be no national economy.”
The Russian republic was by far the largest of the “republics”—that is, states—that comprised the USSR, the Union of Soviet Socialist Republics.
In December 1991, Yeltsin and the speakers of the Ukrainian and Belarusian parliaments met in a forest, in a hunting lodge.
On December 25, 1991, Gorbachev delivered on television what one of his aides called the “death notice” for the Soviet Union—it was dissolving itself. The formerly powerless constituent “republics” would now become independent nations.
The disintegration of the Soviet Union fractured the integrated edifice of the oil industry. The original base on the western side of the Caspian Sea was now in the newly independent nation of Azerbaijan.
As the decade proceeded, the economy rebounded, the foundations of a market economy were taking shape, and optimism came with it.
In 1976, the Leningrad Evening News reported that a previously unknown local “judoist” had won a judo competition and had “for the first time joined the ranks of champions.” It predicted that people would hear more about him in the future. This was Vladimir Putin, age twenty-three.
In 1996, after the mayor lost a reelection bid, Putin found himself unemployed. He pursued a degree at the local geological institute. He also went to Moscow looking for a job. The result, beginning in the state property office, would be a meteoric rise up the ranks of government, until finally, in 2000, he became Yeltsin’s designated successor as president of Russia.
Under Putin, the government reasserted its control over the energy industry.
Similarly, the Russian government holds the controlling stake in the giant gas company Gazprom, headed by Alexey Miller, who was also with Putin in the mayor’s office in St. Petersburg in the early 1990s.
Both Mikhail Gorbachev and Boris Yeltsin had bad luck when it came to oil, with price collapses that sent the economy spiraling downward. By contrast, Vladimir Putin had very good luck, for petroleum prices recovered as he came to power in 2000 and continued to rise during the BRIC era. Output, which had fallen by almost half with the collapse of the Soviet Union, rebounded.
The value of Russia’s oil exports increased eightfold between 2000 and 2012, from $36 billion to $284 billion a year. The annual value of gas exports over the same period increased from $17 billion to $67 billion. As
Russia was a major beneficiary of the commodity supercycle in the BRIC era and the strong demand from emerging market countries that defined it.
Russia’s supply of natural gas to Europe—about 35 percent of Europe’s total gas consumption—is at the center of a geopolitical clash.
Nowhere is this tension more evident than in the fissured and violent relationship between Russia and Ukraine.
The linguistic root of “Ukraine” means “edge” or “border land.” The territory that became known as Ukraine is mostly an extended plain with few natural borders.
Ukraine and Russia both assert a common origin in Kyivan Rus. This medieval kingdom was established by Viking warriors who intermixed with local Slavic tribes in what became known as the “Rus lands,” which were ruled from Kyiv (the capital of Ukraine today).
Kyivan Rus disappeared from history when the Golden Horde, the Mongols, sacked Kyiv in 1240.
Fourteen years later, in 1654, a leader of the Cossacks in what today is Ukraine swore allegiance to the tsar of the eastern Slavic principality of Muscovy, which was “regathering” the Russian lands.
Nationalist identity and fervor were developing in Russia’s Ukraine before World War I.
With the breakup of the Soviet Union at the end of 1991, Ukraine was for the first time—aside from that fleeting moment at the end of World War I—no longer an idea, a borderland, a province of an empire. Now, for the first time, it was a sovereign nation.
At independence, Ukraine was “born nuclear,” for it inherited nineteen hundred nuclear warheads from the Soviet Union, making it the world’s third-largest nuclear state. In 1994, in what is known as the Budapest Memorandum, it gave up those weapons and transferred them to Russia.
One institution managed to sail through the maelstrom of the post-Soviet collapse intact, though somewhat battered—the ministry of natural gas.
Gazprom became the largest gas company in the world. It provided gas to keep Russia’s domestic economy going, even if bills went unpaid; it maintained its reputation as a reliable supplier to Western Europe.
In which direction would Ukraine look for its future? This fundamental question has inflamed relations between Ukraine and Russia ever since the breakup of the Soviet Union.
Natural gas, and the pipelines that carry it, had bound the two countries together—but now would set them against each other.
But this was not a one-way street. Assuring access to Europe was critical for Gazprom, for the European market was its major source of revenues. That meant Russia also depended on Ukraine; as late as 2005, 80 percent of its gas exports to Europe passed through Ukraine’s pipelines.
The breakup of the Soviet Union in 1991 quickly led to acrimony between the two countries over the price of Russian gas and the tariffs charged by Ukraine for passage through its pipelines.
The stolen election ignited massive protests, which converged on Kyiv’s Maidan Square in what became known as the “Orange Revolution”—after the colors of Yushchenko’s campaign.
For the Kremlin, the outcome was a powerful warning of the existential threat from “color revolutions.” Ukraine’s Orange Revolution had been preceded by the “Rose Revolution” in newly independent Georgia, which had swept anti-Russian reformers to power. These color revolutions, as Moscow saw it, were supported by Western nongovernmental organizations and, Moscow suspected, by Western “security services” that were aiming to dislodge Russia from its “privileged sphere” in the rest of the former Soviet Union.
Yushchenko’s victory triggered truculent negotiations over natural gas prices. Ukraine was paying only one-third, or even less, of what Western Europeans were paying.
On January 1, 2006, with no resolution in sight, Gazprom cut off gas earmarked for Ukraine.
Russia maintained that the cutoff was not about politics, but simply about economics and “market pricing”—the Ukrainians should no longer get such a steep discount.
After a few days, the two sides managed to come to a new agreement. But Russia did not get control over the Ukrainian pipeline system.
Three years later, on New Year’s Eve, December 31, 2008, Vladimir Putin sought to inject a little humor into his holiday remarks on Russian television. “It’s a sure sign New Year is coming,” he said. “The gas negotiations are heating up.”
Yet, remarkably, despite exceptionally cold weather, this second gas crisis resulted in no shortages, except in parts of the Balkans.
