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Chechnya: Stolen Oil And Purchased Guns

A man purchasing illegal gasoline outside of Grozny in October 1999 (AFP) Late last month, RIA-Novosti reported that, according to the Russian Interior Ministry, 'criminal gangs’ steal “at least one-third of the oil produced and refined” in Chechnya and that this oil is smuggled out to be sold in neighboring regions “to line ringleaders’ pockets, as well as to finance terrorist activities and bribe government officials.” Russian authorities have charged in the past that stolen oil is used to finance the Chechen resistance movement.

In May 2004, Rosneft head Sergei Bogdanchikov told Interfax that about 7 percent of the republic's 2003 oil production -- some 150,000 tons, was stolen, causing his company some $100 million in losses. Rosneft owns 51 percent of the shares of Grozneftegaz which was established by a government resolution in November 2000 and is responsible for all oil extraction in Chechnya. The other 49 percent is held by the Chechen government. The license to extract oil, however, is held by Rosneft. In 2004, Rosneft earned 12.8 billion rubles in oil sales from Chechnya.

According to pro-Moscow Chechen President Alu Alkhanov, the oil industry accounts for 70 to 80 percent of the republic’s official budget, although Interfax reported on 19 May that Chechnya received 5.2 billion rubles in federal subsidies in 2004.

Since the beginning of 2005, 70 criminal cases related to illegal oil dealings have been opened in Chechnya, according to the press service of the Russian Interior Ministry. Some 133 makeshift refineries were liquidated since the start of the year, 50 tanker trucks carrying stolen fuel were detained, and some 300 storage tanks were liquidated, Interfax reported on 12 September. In 2004, more than 1,700 illegal mini-oil refineries were liquidated by the police.

Oil And The Insurgency

Although it seems clear that oil has played some part in funding the insurgency in Chechnya and the North Caucasus throughout the two Chechen wars, analysts also believe that revenues from stolen oil have not played a decisive role in fueling the fighting.

Officials in Grozny and Moscow periodically assert that Chechen resistance groups use revenues from stolen oil to purchase arms. Other analysts, though, are inclined to believe that the illegal oil-refining industry in the region is primarily used to generate personal profits for local "entrepreneurs."

In 1994, during the early stages of the first war in the North Caucasus, oil transit through the region played an important strategic role. The Baku-Novorossiisk trunk pipeline transited more than 100 kilometers through Chechnya and was often attacked by saboteurs. Considerable amounts of oil were stolen. As a result of this and tariff disputes after the war, a 300,000-barrel-per-day pipeline bypassing Chechnya was constructed in 2000.

However, theft of oil by illicit drilling and by stealing from local pipelines in Chechnya continued on a smaller scale.

Money And Government

One point of contention between the Chechen government and Moscow has been over control of oil resources located inside the republic. Rosneft estimates that known oil reserves in Chechnya will last about 12-15 years, Interfax reported on 15 May 2004. Total production of oil in Chechnya is around 2 million tons a year.

Chechen President Alkhanov has tried to persuade Russian President Vladimir Putin to turn over the oil-drilling license to the republican-controlled Grozneftegaz. According to “Gazeta” on 22 August, Alkhanov told Putin: "If Grozneftegaz receives the license, Rosneft will not lose anything. Grozneftegaz brings in 250 million rubles a year to Chechnya’s budget as profit tax. Granting the license will increase the budget’s oil revenues to 2 billion rubles.”

While Putin promised to think over this proposal, “Gazeta” speculated that he was not satisfied with the plan. The paper quoted a source in government who stated that “Chechnya has a lot of privileges and tax breaks, but Grozny is interested in controlling Grozneftegaz.”

“Gazeta” referred to sources who argued that “passing over the license to Chechnya will let the Chechen administration control production and cash flow. This means that Chechnya would have serious political tools. Moscow will never agree to it.”

With parliamentary elections in Chechnya due on 27 November, Alkhanov appears intent on pushing his proposal to Putin and using it to his advantage in the campaign. On 21 August, Putin promised to sign off on the plan, but this has not happened yet.


While the government of Chechnya seeks to get petrodollars, rebels have been busy blowing up gas pipelines and oil infrastructure in an effort to damage the Russian economy.

In 2004 a number of significant incidents of sabotage took place in the region, and the Russian authorities attributed them to Chechen rebels.

In Daghestan on 5 April 2004, the Russian gas pipeline to Azerbaijan was interdicted for several days. As a result of the incident the Baku-Novorossiisk oil pipeline was also damaged. On 24 April 2004, the Samara-Lisichansk long-distance pipeline was blown up in the vicinity of Volgograd.

On 5 June 2004, the Baku-Novorossiisk oil pipeline reservoir was bombed. On 8 December 2004, the Russian gas pipeline to Azerbaijan was blown up in Daghestan.

In 2005 this campaign seems to have been halted -- possibly due to increased security measures such as the installation of the Magistral pipeline monitoring system, which detects unauthorized personnel and dispatches rapid response teams.

However, the Chechen resistance fighters have displayed a flair for striking at a variety of targets in the past and a lull in sabotage operations in the oil sector is not necessarily a sign that they have abandoned this tactic altogether.

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