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The True Price of Oil
An oil market situation that the president of any oil-producing country might dream about has become the source of a multitude of problems for Vladimir Putin, Vlast correspondent Dmitry Butrin believes. Towards the end of the president's first term, it gave rise to a conflict that shook the foundations of his authority.
It goes without saying that high oil prices mean there are hardly any problems with filling the budget. It was the excellent oil market situation and a rise in gas prices in the EU that allowed the presidential power to solve the problem of social and political stability. The steady increase in citizens' incomes, not least Russian budget users, was the key to Vladimir Putin's triumph in the elections. But the same market situation also became the regime's main neurosis: when the fate of the country, the government's senior managers, and an entire class of bureaucrats is determined neither in the Kremlin nor at a United Russia (Edinaya Rossiya) congress but in a small room of the International Petroleum Exchange (IPE) in London, you will necessarily want to find a more stable foundation. In this sense, the entire first term of Vladimir Putin's presidency was taken up by a struggle with oil magnates whose wealth was essentially carved out during trading on the IPE.
“Equidistancing of the oligarchs” was the first trial. We recall that in 2000, oilmen were in the majority at a meeting between oligarchs and the president. To begin with, the big oil money powers were ordered to practise self-restraint, for example, to stop buying federal and regional bureaucrats and refrain from lobbying in The State Duma. As practice showed, not a single representative of the oil community carried out the president's order in full: the higher the price of oil, the more meaningless seemed a compromise with the president, whose real capabilities at that time were well known to everyone at the meeting.
Roman Abramovich and Mikhail Fridman sent the president an even clearer hint during the privatization of Slavneft in 2001. Neither of them had any intention of paying an extra $1 billion to the state treasury, because it was possible to pay less. The federal government's weakness was apparent at Slavneft: the tale of the firing of Slavneft's recalcitrant president Mikhail Gutseriev showed that in spite of all the equidistancing, the Russian government could not exist without the oligarchs. That was when the words “antipresidential conspiracy” were first heard near the walls of beleaguered Slavneft and the first scenarios for dismantling President Putin's power circulated in the form of rumors. Three years later, at the end of the president's first term, for all their absurdity, similar scenarios were almost being discussed on the streets.
In principle, the presidential power had two objectives in the first term with respect to the oil industry: to bar the legal incorporation of oil money power in Russia into state power, and after increasing the amount of seized oil industry profit, to make itself less dependent on the price situation. Both objectives were achieved over the four-year term, but at a price that is probably too high for the country.
The example of Mikhail Khodorkovsky shows that the assigned tasks could only be accomplished by a drastic worsening of the investment climate in the country. The federal government's real loss of control over the Prosecutor General's Office and the law enforcement agencies is already obvious: all of Putin's admonitions about the inadmissibility of arbitrariness in the persecution of big business, and not only big business, are being smashed against the logic of the development of a campaign launched by the president himself. For all practical purposes, the liberal arm of the government supported Putin in his struggle with the oligarchs, but the fact remains that despite the existing tax claims against YUKOS, Khodorkovsky's story is one of political persecution of a citizen by the state's punitive apparatus, impossible in a civilized country. The fact that it is taking place amidst economic growth only gives the government a reprieve but not an acquittal: once again, everything rests on oil prices, which the state does not control.
For now, Gazprom is the state's only unequivocal victory in the fuel and energy complex. However, it would be wrong to call this victory unequivocal. Although the company has been brought out of critical condition through the efforts of its management, a number of fundamental problems remain: gas market reform, for which a scenario has still not been determined; the risk of pressure on Russia from the European Union; and the threat of Russia losing its monopoly on the EU gas market and its displacement by producers from Kazakhstan and Turkmenistan.
Finally, the oil industry itself was also unable to derive any benefits from the struggle with the state. There was no investment boom, and there were no major changes in the market, except for the formation of TNK-BP (for whom things are not all rosy either, as became clear just before Vladimir Putin's inauguration). At the same time, a distinct fear of oil industry assets appeared. What the government regards as evidence of the encroachment of business on the foundations of state power (e.g., active lobbying in parliament) oilmen see as a natural element of their business, just like everywhere else in the world. And this conflict will not be resolved until the government relinquishes its monopoly on political activity.
Neutralizing the consequences resulting from high oil prices (and to all appearances, they will remain relatively high throughout President Putin's second term) will gradually become one of the main lines of government activity, something like “battles with the harvest”. The oil industry is de facto the main sector of the country's economy. And until it is granted the corresponding political position and the government remembers that it is not a corporation of public servants with their own interests but a service for all Russian citizens, including oil oligarchs, the curse of high oil prices will remain.
All the Article in Russian as of May 17, 2004
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