Petrostate: Putin, Power, and the New Russia | Marshall I. Goldman

Petrostate: Putin, Power, and the New Russia | Marshall I. Goldman | Very interesting insight in today's Russia

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Petrostate: Putin,...

	Petrostate: Putin, Power, and the New Russia Marshall I. Goldman Oxford University Press, USA, 2008 - 256 pages average customer review:based on 7 reviews view larger image
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highly recommended

In the aftermath of the financial collapse of August 1998, it looked as if Russia's day as a superpower had come and gone. That it should recover and reassert itself after less than a decade is nothing short of an economic and political miracle.
Based on extensive research, including several interviews with Vladimir Putin, this revealing book chronicles Russia's dramatic reemergence on the world stage, illuminating the key reason for its rebirth: the use of its ever-expanding energy wealth to reassert its traditional great power ambitions. In his deft, informative narrative, Marshall Goldman traces how this has come to be, and how Russia is using its oil-based power as a lever in world politics. The book provides an informative overview of oil in Russia, traces Vladimir Putin's determined effort to reign in the upstart oil oligarchs who had risen to power in the post-Soviet era, and describes Putin's efforts to renationalize and refashion Russia's industries into state companies and his vaunted "national champions" corporations like Gazprom, largely owned by the state, who do the bidding of the state. Goldman shows how Russia paid off its international debt and has gone on to accumulate the world's third largest holdings of foreign currency reserves--all by becoming the world's largest producer of petroleum and the world's second largest exporter. Today, Vladimir Putin and his cohort have stabilized the Russian economy and recentralized power in Moscow, and fossil fuels (oil and natural gas) have made it all possible.
The story of oil and gas in Russia is a tale of discovery, intrigue, corruption, wealth, misguidance, greed, patronage, nepotism, and power. Marshall Goldman tells this story with panache, as only one of the world's leading authorities on Russia could.

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Excellent Background!

"Petrostate" provides good insights into Russia's comeback after its late 1990s nadir, as well as an understanding of its economic-political strategies.

Russia regained its place as the world's largest oil producer in 2007; energy generates about 30% of Russia's GDP and 60% of its exports. Russia is a major energy provider to Europe and the U.S. The U.S. buys $10 billion of Russian petroleum, LUKoil bought nearly 3,000 U.S. filling stations from Getty Oil and Mobil. Gazprom also provides LNG to the U.S., via a swap arrangement with Algeria. It also provides natural gas to 405 of Germany's homes and many of its factories, as well as much of the rest of Europe. Russia's Gazprom pipelines also play a major role in delivering gas from the "stans."

There is a fair amount of evidence that CIA chief Casey (Reagan administration) worked with Saudi Arabia (mad at Russia for invading Afghanistan) to break Russia's economy via increased S.A. production - however, the data do not provide a clean fit supporting this theory. Low energy prices in 1998 led to Russia defaulting on its debt, as well as many bank failures within the country. Prices quickly recovered in 1999, and along with a 40% increase in production between 2000-2004 transformed Russia into a major holder of foreign currencies. Russia has avoided the "Dutch Disease" because it didn't have much manufacturing, other than defense industries, to start with.

Mass privatization did not begin until mid-1992 under Yeltsin. Oligarch-controlled banks loaned the state money in exchange for stock certificates; most of the state's economic problems were due to companies and individuals failing to pay taxes - only about 3 in 70 did, and even those usually paid much less than owed. It was agreed that if the banks were not repaid, the stock would be sold. This occurred in mostly rigged auctions that, eg. excluded foreigners, and usually at far less than the stock was worth. Thus, auctioning Yukos brought $309 million, vs a market value soon afterwards of $15 billion. Similar actions occurred in the mining industry. Other assets were given away in return for eg. TV stations providing support for Yeltsin.

Capital requirements to establish private commercial banks were only $75,000 in 1989, after inflation; required $750,000 in 1987. "Oligarchs" could achieve this via sales of consumer goods immediately after the ban on their sales was lifted; other sources included trading commodities, taking advantage of government positions to sell hard-to-get commodities (eg. lumber). Legal chicanery and thuggery allowed further aggregations - government insiders during the late 1990s used their positions to exchange rapidly inflating rubles for IMF and Goldman Sachs loans denominated in dollars. (LTCM went bankrupt during this period. Another "trick" was suddenly changing stockholder meeting locations without notifying stockholders not part of management.)

Many banks failed, however, during the commodities downturn, and millions lost their savings - including Gorbachev. Putin stepped in and replaced Russia's graduated tax (maximum 30%) with a 13% flat tax, set goals of increasing GDP 7%/year (double in ten years), and increased military spending 27% in 2005 and another 22% in 2006.

Putin's 1997 dissertation proposed creating effective companies in natural resources and using them to advance Russia's national interests after commandeering them. He also wanted to open manufacturing to foreign investment (help modernize), but retain operating control - again to focus on national interests. ("National interest" was equated with low prices within Russia, and suspending deliveries to foreign countries that don't support Russian policy.)

Putin seized the assets of media moguls that criticized him, then replaced oil leaders involved in "asset-stripping," and maneuvering to sell large portions of their companies to American firms, reach long-term agreements to sell oil to China, and failing to pay taxes. (Oil leaders were also deemed guilty of black market activities, an economic crime in Russia. Further, there was strong evidence some were involved in several murders of both public leaders and private competitors.)

Russia's re-nationalizing industry (typically 50% + 1) has given it leverage greater than with nuclear weapons (they were only useful as threats). Reagan tried to block construction of a new gas pipeline from Russia into Europe, and backed it up by banning use of G.E. pumps and other pumps using American parts. Britain, however, ignored Reagan and supplied the equipment. (Cheney has subsequently made similar efforts elsewhere against Russia, and failed as well.)

Russia has the world's largest reserves of natural gas. Ukraine was receiving gas at about 1/3 the world market price, was warned that if wanted closer relationships with the West it should pay Western prices, and then was cut off when it refused to do so and instead diverted Germany's supplies. Similar haggling has occurred involving Georgia and Hungary - the latter regarding its possible agreement to host a competing gas line.

Russia now is claiming ownership of the North Pole sea bottom as an extension of Russia - experts believe it is rich in energy resources.

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Very interesting insight in today's Russia

The book opens with the sentence "Russia once again an energy superpower and that is exactly what the book is about.

Russia was the most important non-American producer at the start of the 20th century, it was a very important producer during the Cold War years and it lost it completely in the break up of the Soviet Union.

After the desatrous privatisation under Jeltzin the industry was in tatters. Goldman describes clearly and with good analytical depth how under Putin the country slowly got its grip on its most important natural resource back. Needless to say that the methods used were heavy handed and certainly in a general sense morally and legally questionable. This is not new and the saga continues as we read in the news paper every day ( see e.g. the deleopments around the BP-TNK joint venture).

Goldman also analyzes the role the energy industry plays in the overall aim of Russia to be an important power once again. In particular Europeans should watch this with intensity as they are more and omore dependent on Russia for their energy, in particular gas.

In all, a good, readable and enjoyable analysis. The 5th star is missing for the technical flaws pointed out correctly bey another reviewer. Not hurting the conclusions but a bit sloppy indeed.

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The Future of our Foreign Policy

This book is an important read for anyone with an interest in foreign policy and the role that energy is playing in it.

I have read the book and listened to Marshall Goldman speak, and read the other reviews, and am writing this because I think the other reviewers may be missing an important point. It is not so much about the details of the book, and I am sure there are some factual errors. The story is about Putin and about Energy, and how Putin has turned Russia from a bankrupt nation to an energy and economic. powerhouse. Goldman's main message is that we should understand how Russia is successfully using energy as a tool of foreign policy. For example, much of Europe, particularly Germany and Eastern Europe, is becoming dependent on Russia for natural gas, a principle source of their energy supply. Russia is building Nord Stream, a pipeline under the Baltic to deliver natural gas directly to Germany. Russia has a pipeline under the Black Sea to deliver natural gas through Turkey up to Hungary. Russia recently reduced the supply of oil to the Czech Republic, a clear suggestion that Russia is unhappy with U.S - Czech Missile Defense Agreement. Russia is attempting, with some success, to create a pipeline monopoly for delivering natural gas to Europe. Goldman shows how Gazprom is squeezing the supporters of the non-Russian NABUCCO Pipeline from Azerbaijan through Georgia to Turkey and thence to Europe, and how Russia, through Gazprom, particularly is creating partnerships with other gas producers, such as Algeria, to be their distribution arm, closing out possible competitors. Goldman describes the concept of having Russian company officers being simultaneously key members of the government, therefore assuring that the companies are supporting government objectives and policies. Gazprom is a particularly good example.

Of course, all of this Russian power comes from a simple fact: the price of oil and natural gas has jumped since 1998, when Russia was almost bankrupt. Putin is the beneficiary even if not the cause of this phenomenon.

One might get dramatic and say that Russia has invaded Europe, with natural gas pipelines rather than tanks. Perhaps we should take note.

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Petrostate Review

Goldman's book, Petrostate was somewhat interesting and shed some light on the complexity of business and energy in Russia. His research and references were undeniable but at times (not to his fault) difficult to follow because of the many "smoke and mirrors" corporate structures of many Russian companies and individuals based there. The government is layered with backscratching which he points out brilliantly throughout.

Overall, the book gave me a better understanding of business in Russia and the size and scope of their global position in energy. Good read.

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reviews: page 1, 2

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