There has been speculation, including in this Aljazeera piece by Paul Hockenos, that Russian leader Vladimir Putin will fall victim to “The Oil Curse” as set out in Michael L. Ross's book of the same name. The theory is that Russia’s dependence on oil and natural gas will lead, as it often does in similar circumstances, to the eventual collapse of the government. This belief ignores something basic about Russia and its people that could keep Putin in power and lead to more of the aggressive foreign policy that we have seen this year with regard to Ukraine.
History would suggest that the oil curse itself is real. From the fall of the Shah of Iran in 1979 to the current problems in South Sudan, there is ample recent evidence that a country overly dependent on mineral wealth is more prone to authoritarian government and unequal wealth distribution.
There is, however, a hint of “chicken and egg” to the idea. Does dependence on oil inevitably produce inequality and authoritarianism? Or is it just that countries with authoritarian governments and extreme poverty stay that way when they discover oil reserves, making them more prone to collapse? As this Reuter UK piece reports, an oil boom has caused some problems in Norway, for example, but hasn’t caused an existential threat.
How a country deals with newfound wealth and power depends on several factors. Rather than fitting into a pattern, the existing social, societal and governmental conditions influence the outcome. Having lived and worked in Russia during the course of a near 20-year career in the foreign exchange market, I believe that there is something in the psyche of Russians that will protect Putin from the curse of oil.
I should say at this point that, as an Englishman who has lived and worked in Japan, Poland and now the U.S. as well as Russia, I am all too aware of the dangers of attributing characteristics and beliefs to people based on their nationality. I do not have perfectly straight teeth, am prone to a touch of arrogance and have a penchant for overcooked vegetables, but these things are not necessarily because I’m English, nor do they necessarily apply to all English people.
That said, most countries have national traits. When I moved from Russia to Poland, I was frequently asked to offer my opinion of the two countries. It was usually pleasing to my Polish friends when I replied with my honest observation. Russia, I said, had been a communist country for 80 years, while Poland had been a country with communist leaders for 40. The Russians, with the Tsarist regime immediately preceding communism, were somewhat resigned to authoritarian government. They had a misty eyed view of past Russian greatness and were looking for a strong leader to take them back there. We should not forget that even as the Berlin Wall fell, change in Russia came from the top down.
To us in the West, pictures of Putin doing manly things with a bare chest are ridiculous, but do we honestly believe he would keep publishing them if they didn’t serve a purpose? This carefully cultivated image of a strong man will give Putin some protection. We place too much emphasis on protests within the country because we believe that, of course, everybody wants freedom and real democracy above all else. In my experience, most Russians don’t think that way. They have a fatalistic outlook and are not averse to following orders. It doesn’t occur to us that some people are resigned to dictatorial government and value stability over change, but they are and do.
There is no doubt that Russia is hugely dependent on its oil and gas reserves. They account for 70 percent of the country’s exports and 52 percent of the federal budget, according to the previously cited Aljazeera report. That doesn’t lead to an inevitable conclusion that Russia is a failing state. It is far more likely that Putin will use the money and power that fact brings to further enhance his image as a strong leader with a mission to restore Russia to what Russians see as its former glory.
It is that, rather than the instability or leverage that large oil and gas reserves have caused elsewhere in the past, that should have the rest of the world concerned.
By Martin Tillier of Oilprice.com