Falling Oil Prices are Saving the World from Russia’s Ambitions

Paul Goble
Trešdiena, 19. novembris

According to an anecdote now circulating in Russia, when oil is 160 US dollars a barrel, Vladimir Putin says that Moscow should rule the world. When the price falls to 120 dollars a barrel, he argues that Moscow should control all the countries of the former Soviet Union.

When it declines to 60 dollars a barrel, the Russian prime minister says that Moscow will oppose the inclusion of Ukraine and Georgia in NATO. But should the price of oil decline still further, to 30 dollars a barrel or less, the anecdote concludes, Putin is going to say that Moscow demands NATO offer membership to both of those former Soviet republics.

Now, in a case of life imitating art or at least one of its most expressive popular forms, an article reviewing the impact of oil prices on Russia’s foreign policy agenda around the world has concluded that “the decline in the price of oil has saved the world from the ambitions of Russia” (http://www.obozrevatel.com/news/2008/11/18/269161.htm).

Russian specialists on oil extraction say that the price declines have effectively “put a cross on the ambitions of Russia [to develop the petroleum fields] on the Arctic seabed.” And prices would have to rise to more than 100 dollars a barrel and Moscow give companies involved a tax holiday to make drilling there worthwhile (www.rbcdaily.ru/index2.shtml).

Saying that the collapse in oil prices had made the Arctic “unprofitable,” the specialists added that if it continues, Russian petroleum companies face a difficult future because below the Arctic floor are more than71 percent of Russia’s estimated reserves of oil and more than 88 percent of its estimated reserves of natural gas.

A year ago, when Moscow was making dramatic claims on the Arctic seabed and frightening many other Polar powers, the Russian government was acting on the assumption that oil would stay above 61 dollars a barrel and gas above 230 dollars per thousand cubic meters. Now, with lower prices, the Russian experts say, Moscow has to back away, at least for a time.

Not surprisingly, Russian oil and gas majors have come up with a proposal that could mean Moscow would be able to re-enter the competition for the Arctic: they have suggested that the Russian government offer companies that get involved in the exploitation of petroleum reserves there a tax holiday, thus lowering the prices at which this effort would be profitable.

These analyses, published today, concern only the impact on the development of the Arctic, but the falling price of oil has some obvious consequences for Russian foreign policy elsewhere. On the one hand and despite its reserves, Moscow is likely going to have to spend enormous sums on domestic needs, especially if it finds it difficult to borrow money abroad.

Indeed, it is especially likely to do so because the current generation of Russian leaders is very much aware that the fall in oil prices in the early 1980s played a key role in the destruction of the Soviet Union, just as the rise in oil prices after the 1973 oil embargo probably played a key role in the survival of the USSR for another 15 years.

And on the other hand, Moscow is not going to have the resources to project force at the same levels it had been doing or planned to do only a few months ago. That could make the Russian authorities more inclined to use force in tightly focused ways especially if, as in the case of Moscow’s invasion of Georgia, that distracts the attention of Russians from their problems.

Consequently, whether the decline in oil prices will in fact “save the world from Russia’s ambitions” remains very much an open question, but it is a question that policy makers and analysts in both Moscow and Western capitals are likely to have to devote more attention to in the coming months than they had ever expected to even as recently as last summer.