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International Crises Boost Russia's Energy Posture

Prime Minister Vladimir Putin (right) dips his hand into a hardhat full of oil. Critics say he's likely delighted by international crises that have increased the value of Russia's chief export.
Prime Minister Vladimir Putin (right) dips his hand into a hardhat full of oil. Critics say he's likely delighted by international crises that have increased the value of Russia's chief export.
With U.S.-led fighter jets pounding military assets in oil-rich Libya, and Japan still struggling to contain radiation at its stricken Fukushima nuclear plant, concerns are rising around the world about the future of energy supplies. But not in Russia.

As the unrest in the Middle East bites into supplies, prices for crude approached $105 a barrel this week. That's helping drive windfall profits that are enabling the world's biggest energy exporter to finally emerge from recession triggered by the global financial crisis in 2008.

But while that's good news for Russia's economy, Kremlin critics say rising energy prices are again shoring up the country's authoritarian government -- and that's bad for politics.

Energy Savior

Russia is using the crises in the Middle East and Japan to burnish its image as the world's energy superpower. Prime Minister Vladimir Putin -- who has predicted that Russia's GDP will equal its precrisis level by next year -- exchanged his usually stern demeanor for an uncharacteristically friendly manner last week and promised to help Japan, where the nuclear crisis has forced electricity blackouts. He predicted the effects of the earthquake and tsunami to energy supplies there will be long-term.

"In that regard, we have to think of accelerating our plans to develop hydrocarbon-extraction projects -- particularly gas extraction -- in the Far East," he said.

Putin offered to pump more gas to Europe by pipeline, freeing shipments of liquefied natural gas for Japan. He also proposed laying an electricity cable to Japan and offered Japanese companies stakes in Siberian gas fields. Moscow has issued more offers since, including encouragement for Japanese companies to invest in Russia's coal industry.

But some analysts are warning Russia's heightened focus on its global energy role is eroding any -- already distant -- hopes the government would enact economic reform. The Kremlin vowed to diversify the country's economy after plummeting oil prices dealt the economy a body blow during the global financial crisis.

Anti-Westernism Rising

Political analyst Andrei Piontkovsky says the latest events in the Middle East are instead helping speed a return to Russia's precrisis situation, when peak oil prices flooded the country with cash.

"We're returning to the golden era of 2006 and 2007, with official propaganda slogans extolling a 'great energy power,'" Piontkovsky says. "It's very good for a very limited group of people for a very short time period, but certainly it's very bad for the country."

Piontkovsky says the developments are reinforcing the "general mentality" of Russia's leaders, reflected in a return to the kind of strident anti-Western rhetoric that was especially loud during the precrisis oil boom.

He points to President Dmitry Medvedev's comments this month in which he blamed Western countries for prompting the Middle East unrest, adding that "they have prepared such a scenario for us."

But it's Putin who's seen as Russia's supreme leader. He lashed out on March 22 in his strongest anti-Western comments in years, condemning the UN Security Council for authorizing force against Libya. He said last week's resolution enabled Western countries to take action against a sovereign state "under the guise of protecting the civilian population."

"It actually resembles medieval calls for crusades when someone called on others to go to a certain place and liberate it," Putin said.

Redefining Foreign Policy

But the atmosphere in Moscow is more nuanced then the rhetoric suggests. Medvedev rejected Putin's comments, calling them "unacceptable." And despite Putin's displeasure, Russia declined to veto the resolution when it came to a vote last week, instead choosing to abstain.

Fyodr Lukyanov, editor of the journal "Russia in Global Affairs," sees that decision as more significant than the tough talk. "It's not typical," he says. "Russia used to take stands for or against, particularly when it comes to issues such as intervention in other countries."

He says foreign policy isn't being driven by rising oil prices. "It's about the gradual refocusing of Russian interests and redefining of Russian foreign-policy identity from a global one to a more regional one."

That change, he says, reflects a "much more rational calculation of priorities."

"It doesn't mean Russia is more pro-Western," Lukyanov says. "Russia is becoming less global, which means that, for example, the idea to challenge Washington everywhere and over everything isn't relevant anymore."

Russia's Resources Card

Boosting energy exports is among the priorities, as Putin's latest salesmanship reflects. But maintaining current levels won't be as easy as it may appear.

Economist Clifford Gaddy of the Brookings Institution says the key question for Russia's future economic success will be how it responds to demand in resource-hungry China. Whatever the rhetoric coming out of the Kremlin, he says, Russia has little chance of competing in any other sector.

"You can dream all you want about diversification and blame Putin or whoever for not diversifying or praise them because they want to diversify," Gaddy says, "but it doesn’t make very much sense. Russia's comparative, competitive advantage is not in anything except resources, so the smart thing to do is play that card."

For now, Gaddy sees few long-term effects for Russia from the Middle East unrest, saying oil prices were predicted to rise to $105 to $108 this year even before it began, while commodity prices are expected to continue rising for the foreseeable future.

That's depressing news for Putin's critics. Many believe the prime minister plans to return to the presidency in an election next year, and -- if elected again -- he could remain in office for the next 12 years.

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