If Geology Is Destiny, Then Russia Is in Trouble

By Moisés Naím

Published: December 4, 2003


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WASHINGTON— Russia's future will be defined as much by geology as by ideology. Unfortunately, while leaders can pick their ideology, they don't have much of a choice when it comes to geology.

Russia has a lot of oil, and this inescapable geological fact will determine many of the policy choices available to it. Oil and gas now account for roughly 20 percent of Russia's economy, 55 percent of all its export earnings and 40 percent of its total tax revenues. Russia is the world's second largest oil exporter after Saudi Arabia, and its subsoil contains about 30 percent of the world's gas reserves. It already supplies 30 percent of Europe's gas needs. And Russia's oil and gas industry will only become more important. No other sector has the potential to be as internationally competitive, or as profitable.

Yet such growth is also dangerous. Russia risks becoming, and in many respects may already be, a ''petrostate.'' In the debate set off by the arrest of Mikhail Khodorkovsky, the former chief executive of Yukos Oil and Russia's richest man, over what kind of country Russia is becoming, its characteristics as a petrostate deserve as much attention as the Kremlin's factional struggles.

Petrostates are oil-rich countries plagued by weak institutions, a poorly functioning public sector, and a high concentration of power and wealth. The gulf between a petrostate's rich natural resources and the chronic poverty of its citizens often leads to political unrest and frustration. Nigeria and Venezuela are good examples.