Effects of more plentiful oil and gas on Russia

I’ve written before about the remarkable speed at which non-conventional oil and gas, especially shale gas, are being discovered and (at least in the US) exploited. The effect of this on world energy markets is likely to be good for consumers, but not for traditional suppliers, especially the Middle East producers and Russia. Russia’s economy has been built on oil and gas for a century. The collapse of the Soviet Union came after a steep fall in the oil price from the highs of the 1970s. The strength of the Putin regime has coincided with high prices (see diagram).

Source: Wikipedia based on BP data
Source: Wikipedia based on BP data

There is a powerful linkage, which is discussed in this report by Lauren Goodrich and Marc Lanthemann of intelligence consultancy Stratfor. They also emphasise the ways that Russia (and before it the USSR) used energy as a political tool, to reward and punish countries. With the risk of lower prices in future, Russia will have to choose between maximising revenue and maximising political influence. It’s more likely to do the former, which is why shale gas and unconventional oil may have big political effects.

  1. Andrés Arboleda

    Professor Taylor,
    Reading through your post, I immediately thought on a book written by Thomas Friedman back in 2008 called ‘Hot, flat and crowded’. He is an American writer who has written a few books in the impact of globalization in people’s lives.

    Well, in this book there is a chapter Friedman calls ‘Petropolitics’ in which he analyzes how dictatorships arise and sustain themselves in countries which depend heavily in oil. He shows some data for Venezuela, Iran and Nigeria and one can see how prices spikes coincide with a rise in dictatorships. He goes a little bit further and shows that the so called ‘freedom indexes’ (referring to indexes that try to capture the degree of freedom of expression among the population of a country) in theses countries correlate negatively whenever there is a rise in the price of oil.

    I think this is something that complements your idea about how Russia will have to make a tough decision in how to cope with this alternative energy source.

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