Wheel of Fortune: The Battle for Oil and Power in Russia

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Overview

The Russian oil industry—which vies with Saudi Arabia as the world’s largest producer and exporter of oil, providing nearly 12 percent of the global supply—is facing mounting problems that could send shock waves through the Russian economy and worldwide. Wheel of Fortune provides an authoritative account of this vital industry from the last years of communism to its uncertain future. Tracking the interdependence among Russia’s oil industry, politics, and economy, Thane Gustafson shows how the stakes extend beyond international energy security to include the potential threat of a destabilized Russia.

Gustafson, a leading consultant and analyst of the politics of energy in the former Soviet Union, draws on interviews with key players over the course of two decades to provide a detailed history of the oil industry’s evolution since the breakup of the Soviet Union. At its center is the complex and fraught relationship between the oil industry and the state, which loosened its grip under Yeltsin only to tighten it again under Putin. As oil becomes harder to find and more expensive to produce and deliver, Gustafson warns, Russia’s growing dependence on revenue from oil exports, along with its inefficient and often-corrupt management of the industry, is unsustainable.

A rich but troubled Soviet legacy, the conflicting ambitions of politicians and industry oligarchs, and the excesses of capitalism Russian-style threaten to lead Russia to an impasse. Involving the oil industry in the country’s modernization agenda and remaking its relationship to the state, Gustafson argues, is Russia’s best path toward a stable economy and a safer world.

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Editorial Reviews

Publishers Weekly
Few Americans realize that Russia is the world’s largest oil producer, providing 12% of global supply. Gustafson, an authority on Russian energy politics and professor of government at Georgetown University, writes of the uneasy relationship between the state and oil industry since the fall of the Soviet Union in 1991. Throughout, he documents “unresolved conflict among Russians over the principles by which society and the economy should be run.” Intramural struggles for control of “inherited oil assets and rent” in post-Soviet Russia and deep resistance to ostensibly superior Western technology have dragged down the industry. One major strand of the book follows the rise and fall of the private oil company Yukos and its CEO, Mikhail Khodorkovsky. The Yukos affair, particularly Khodorkovsky’s arrest, signaled that Prime Minister Vladimir Putin intends to keep a firm grip on oil and much more. Gustafson grinds no axe, but concludes that Russians, comfortable with statism and coercion, “are not well prepared to deal with the coming challenge” in the looming worldwide increase in demand For specialists in geopolitics or global energy, this exacting and lucid account should be required reading. The sheer amount of detail, though, may be difficult more casual readers. Much of Gustafson’s account involves shady politicians and complex strategies that only experts will recognize or easily understand. 3 maps, 7 charts, 2 tables. (Nov.)
Strobe Talbott
Thane Gustafson is the master expert on Russia's vast oil and gas industry. In his latest book, which is meticulously researched and lucidly written, he tells the story of the past two decades as the hydrocarbon-rich Eurasian giant has sought, in fits and starts, to shuck its Soviet past and become a normal, modern nation, integrated into the global economy.
Lord Browne Of Madingley
Thane Gustafson has seen close up the wrenching challenges in the Russian oil industry. This is an excellent book written from firsthand experience.
Francis Fukuyama
Wheel of Fortune not only provides the most comprehensive history of the Russian oil sector to date, but its greatest virtue is that it places the industry's rise in a broader political and historical context that only a deep observer like Thane Gustafson can provide.
Andrew Gould
A tale of the struggle for power and money in the Russian oil industry—with fateful consequence for both Russia and the world.
Nature
Russian oil has had a bumpy ride. The world leader in the 1980s, the industry went into steep decline with the Soviet Union's dismantling in 1991. When the Iron Curtain rose, the state's oilmen--mostly geologists and engineers--were shocked by a global industry rife with lawyers and traders. Now oil and roubles shunt through the pipelines of new Russia but the relationship between state and industry is often explosive. Energy-policy analyst Thane Gustafson reveals Vladimir Putin's pivotal role, the effects of the 2008 crash, and the complex currents and uncertain future of regional oil.
Foreign Affairs - Robert Legvold
Few have studied the Russian oil and gas industry longer or with a broader political perspective than Gustafson. The result is this superb book, which is not merely a fascinating, subtle history of the industry since the Soviet Union's collapse but also the single most revealing work on Russian politics and economics published in the last several years.
Choice - Y. Polsky
Gustafson has made an important contribution to the study of Russian capitalism.
London Review of Books - Tony Wood
Thane Gustafson's Wheel of Fortune is the fullest account so far of Russian oil in the 1990s and 2000s...Wheel of Fortune is...built on an impressive grasp of the way the Russian oil industry works. But its arguments also have a wider relevance for understanding the country's post-Soviet fortunes...What Wheel of Fortune describes is not so much the displacement of private companies by a state-led model as the creation of a new hybrid form...This blurring of the personnel, motivations and strategic orientations of state and private sectors is the hallmark of contemporary Russian capitalism. No one reading this book could think the Soviet system is simply being re-created under Putin: the most likely outcome of another round of privatizations, it suggests, is a concerted attempt by the state-business elite to turn the companies it controls into private property.
Financial Times - Neil Buckley
The history of Russia's oil industry since the collapse of communism is the history of the country itself. There can be few better guides to this terrain than Thane Gustafson, a professor of government at Georgetown University who has been studying Russia and global oil for more than three decades. His Wheel of Fortune stands out amid a series of recent books on Russia, combining meticulous research with a storyteller's gift.
Times Literary Supplement - Peter Rutland
Thane Gustafson has produced what will surely be the definitive work on this subject...For the past twenty years Gustafson has shuttled back and forth to Russia, getting to know many of the key players. Having been present at the creation, he is uniquely placed to combine an insider's knowledge of how the industry works with academic analytical skills and a sophisticated understanding of Russian culture and politics.
International Affairs - Catherine Yusupov
A thorough history...of the symbiosis of oil and politics since the unraveling of the Soviet Union. Gustafson masterfully cuts through the confusion of the immediate post-Soviet period to distil a clear narrative about the struggles of the first Russian oil majors and the oligarchs who came to control them; the contributions and failures of international investment in Russia's oil sector; the genesis of energy-attuned leaders; and the evolution of the institutions regulating the sector today. After four decades of studying Soviet/Russian politics and a concurrent two decades of leading IHS CERA's Russian and Caspian energy consulting team, Gustafson has a rare combination of academic understanding and industry acumen, which informs a top-notch analysis of the forces shaping Russia's current economic and political trajectory. The book takes readers through stories of a motley cast of characters: from a handful of obscure Siberian oil generals who inherited control of prize fields, to budding businessmen who rose to become some of the richest in Russia, to public servants for the city of St. Petersburg who came to dominate the country's political machine. Gustafson's research draws on scores of personal interviews with key government and industry players over 20 years. With a keenly observant eye, Gustafson tracks the impact that each of these individuals had on the course of development of the oil industry and its relationship with the political apparatus.
Lord Browne of Madingley
Thane Gustafson has seen close up the wrenching challenges in the Russian oil industry. This is an excellent book written from firsthand experience.
Nature
Russian oil has had a bumpy ride. The world leader in the 1980s, the industry went into steep decline with the Soviet Union's dismantling in 1991. When the Iron Curtain rose, the state's oilmen--mostly geologists and engineers--were shocked by a global industry rife with lawyers and traders. Now oil and roubles shunt through the pipelines of new Russia but the relationship between state and industry is often explosive. Energy-policy analyst Thane Gustafson reveals Vladimir Putin's pivotal role, the effects of the 2008 crash, and the complex currents and uncertain future of regional oil.
Kirkus Reviews
Peak oil's not just a capitalist conspiracy, and Vladimir Putin is vexed and peeved. When the Soviet Union collapsed in 1991, writes Gustafson (Government/Georgetown Univ.; Capitalism Russian-Style, 1999, etc.), the Soviet oil system went with it. In the 1980s, it was the world's leading producer of oil, but a decade later, production had fallen by half. Oil shored up the system, and by Gustafson's lights, it made Putin what he is today: Formerly a shabby bureaucrat, once fed a constant diet of oil rubles, his "standard of living clearly improved, even before he became president." Yet Putin is not the guarantor of a system under which capitalist Russia's new rich can safely continue to collect billions, for Putin seems to view oil as a means to an end, that end being a well-funded military. "His basic view," writes the author, "that revenues from oil should be channeled by the state to support Russia's other strategic industries, remains essentially unchanged from those views he first expressed in the 1990s when he first came to power." Gustafson notes that the Russian oil economy is at a crossroads, with no clear signal ahead. It might well revert to state control, or it might become a free-market leader, though the likelihood seems to tend in the direction of the former. What seems more certain is that the glory days have passed, since there's a rule of thumb in oil that the biggest and richest fields have likely been discovered and since production seems destined to dwindle, barring fantastic discoveries in the ever-more-accessible Arctic. A useful, readable primer in a specialized but strategically important corner of geopolitics.
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Product Details

  • ISBN-13: 9780674066472
  • Publisher: Harvard University Press
  • Publication date: 11/6/2012
  • Pages: 672
  • Sales rank: 679,247
  • Product dimensions: 6.30 (w) x 9.20 (h) x 1.70 (d)

Meet the Author

Thane Gustafson is Professor of Government at Georgetown University and Senior Director of IHS Cambridge Energy Research Associates.
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Read an Excerpt

From Chapter Four: Worlds in Collision: The Foreigners Arrive in Russia



Early on a winter morning in Calgary in 1995 I joined a planeload of Canadian drillers on their way to north Russia. Our chartered Boeing 737 had never been built to fly so far—its main virtue was that it was cheap—and it made five refueling stops as it lumbered its way across the Canadian north and over Iceland, landing in Murmansk on the Russian Kola Peninsula. There we cleared passport control and customs before flying the last leg to our destination, Usinsk, an isolated oil town in the Russian northwest, where we finally disembarked, twenty-four hours after takeoff. This is the daily life of the itinerant roughnecks and roustabouts, the foot-soldiers of the oil business, who like migrating birds, fly across half the globe to work their shifts, typically one month on and one month off, in remote places with even remoter languages and customs.

The oil industry in Alberta was still recovering from the oil-price collapse of 1986, and there were plenty of underemployed oilworkers and companies looking for new opportunities. Even before the Iron Curtain came down they had discovered Russia. As early as 1988, as Gorbachev’s reforms pried open the closed Soviet world, Western oilmen began arriving, attracted by the prospect of forming joint ventures, which Gorbachev had first authorized in 1987 as a means of attracting foreign technology. To the Albertans northern Russia looked like familiar territory: instead of muskeg the locals called it tundra, but it was the same swampy stuff, the temperature oppressively hot in summer and properly frigid in winter. The Russians played a decent game of ice hockey, held their liquor pretty well by Alberta standards, and the mosquitoes were Canadian-size. The Russian oilmen were also, as the Albertans came to recognize, men who knew their oil.

But beneath the apparent similarities lay worlds of difference, and finding common ground would turn out to be far more difficult than either side imagined. This chapter, the first of two on the foreign oil companies in Russia, tells the story of their initial arrival and difficult relations during the years of the Russian oil industry’s decline and gradual stabilization, up to the 1997-98 crash. What did the foreign oilmen contribute during those years of crisis, and what roles did they play in the rise of the new Russian oil industry?

When they entered Russia, the Western companies embodied, so to speak, modern capitalism in action. They brought with them far more efficient management and advanced technology, and radically higher standards of execution, job safety, and environmental protection, than anything seen in the Soviet Union. Along with the large international oil companies arrived a phalanx of service companies and equipment suppliers and smaller operators, not to mention law firms, financial advisors, management consultants, and other modern missionaries, who promptly set up shop in Moscow, to the fascinated amazement of the Russians, for whom all of this was wholly new.

Given the importance of oil to the prostrate economy of Russia of the early 1990s and the deep crisis in the Russian oil industry itself, one might have expected the foreign oil companies to carve out major roles, both as partners and as models, in the post-Soviet adaptation and recovery of the oil sector. But except for a handful of exceptions they have not. The same broad observation holds also for the foreign oil companies’ larger impact on Russian oil policy and legislation: they have had only minor roles in the key issues that have shaped the Russian oil industry over the last twenty years. For the most part foreign companies have been bystanders, hardly more than bit players—typically in the roles of pretexts or prizes—in a Russian passion play they could only partly follow, and over which they have had hardly any influence. The broad drivers that have shaped the post-Soviet evolution of the oil industry—the cycle of state collapse and recovery, the battle for control of the oil sector and oil rents, and the evolving relationship between the state and the industry—have hardly involved foreign players at all.

On the face of it, this is surprising. After three generations of near-complete isolation from the West, Russia had reopened itself to the outside world. Russia’s overthrow of the communist system and the end of the Iron Curtain made Russia initially quite receptive to new ideas. Rejoining the global mainstream had a powerful appeal: one of the phrases heard most often from Russians in those years was that Russia would at last become “civilized” (tsivilizovanno), a “normal country,” by which they meant, among other things, a two-way open street.

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Table of Contents

Introduction 1

1 The Breakup: The Soviet Oil Industry Disintegrates 30

2 Riding Chaos: The Battle for Ownership, Money, and Power 63

3 The Birth of the Russian Majors: LUKoil, Surgutneftegaz, and Yukos 98

4 Worlds in Collision: The Foreigners Arrive in Russia 145

5 The Russian "Oil Miracle": 1999-2004 185

6 The Brothers from Saint Petersburg: The Origins of Putin's State Capitalism 231

7 "Chudo" Meets "Russian Bear": The Yukos Affair 272

8 Russia's Accidental Oil Champion: The Rise of Rosneft 319

9 Krizis: The Rude Awakening of 2008-2009 and the Russian Oil-Tax Dilemma 359

10 Strong Thumbs, Weak Fingers: How the State Regulates the Oil Industry 382

11 The Half-Raised Curtain: The Foreign Companies as Agents of Change 411

12 Three Colors of Oil: The Coming Crisis of Oil Rents 449

13 Looking Ahead: Oil and the Future of Russia; Russia and the Future of Oil 480

Notes 503

Bibliography 615

Acknowledgments 637

Index 641

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