home > by publication type > daily analysis > Russia’s Economic Pipeline
Email
| Author: | Lee Hudson Teslik |
|---|
A Gazprom pipeline in Belarus. Russian energy exports underpin a growing economy and assertive foreign policy. (AP/ Sergei Grits)
Russia’s next president, Dmitri Medvedev, is a businessman. Before entering politics, Medvedev worked at a timber company, then sat on the board of a major Russian paper producer. He is currently the chairman of Gazprom, the energy giant that is Russia’s largest company and the world’s leading producer of natural gas. Some analysts, like CFR’s Stephen Sestanovich, say Medvedev’s business background may explain why Russian President Vladimir Putin seems so keen on him. Medvedev has no explicit KGB connections, Sestanovich says, which extracts him from Russia’s political turf wars. But Medvedev also makes a case for himself on economic grounds (Moscow Times). Following a sweeping victory (Reuters) in Russia’s March 2 vote, which some election monitors criticized for irregularities (BBC), Medvedev stands poised to assume power at a time when Russia’s economy is at a crossroads. Booming wealth from natural resources has put the country in a newly powerful position, but a host of lingering problems threaten to undermine Moscow’s new buoyancy.
Spiking oil and natural gas prices account for much of Russia’s boom. Global oil prices have increased nearly tenfold since 1998, when they hit lows under eleven dollars per barrel (PDF). Data from the International Monetary Fund (IMF), displayed below, shows how this trend has steadily lifted Russia’s per-capita gross domestic product (GDP) from a point where it was well below the global average to having now surpassed it. In 2007, Russia showed GDP growth between 6.5 percent and 8.1 percent, depending whose numbers you use. In either case, that was at least double the 2007 growth rate of the United States, though the U.S. economy still dwarfs that of Russia in overall size. The Russian economy has also benefited from a flood of foreign investment. A commentary in Forbes notes that more than $200 billion flowed into Russia in 2007, marking an annual foreign investment growth rate of 2.5 percent—higher than that of any of the world’s fifteen biggest economies (Russia ranks eleventh, by 2007 IMF data).
This boom has brought increased political power, which analysts say the Kremlin has eagerly flexed. The row over Kosovo’s independence provides an example. After threatening to block UN recognition of Kosovo, Moscow negotiated a natural gas deal that gives the Kremlin substantial control over Serbia’s natural gas industry (Eurasia Monitor). At the same time, Russia threatened to cut gas shipments (ChiTrib) to regional rivals like Ukraine. The BBC credits newfound Russian economic stability for Putin’s “confident swagger” in regional politics. The Economist quotes one unnamed European leader as saying, “Russia is getting stronger; we are getting weaker.” The same article features a graphic demonstrating Russia’s chokehold on Europe’s natural gas industry.
Yet for all Moscow’s recent gains, economic storm clouds loom on the horizon for the next Russian president. In the first place, Russian growth is slowing. The Economist Intelligence Unit projects real GDP growth will drop from 7.5 percent in 2007 to 4.3 percent in 2012. The country’s inflation rate, which jumped to 11.9 percent in 2007, also poses a major problem (Bloomberg). The World Bank’s latest report on the Russian economy cites a slew of short- to medium-term challenges, from developing critical infrastructure to improving fiscal policy. A recent Foreign Affairs article adds another pessimistic note, arguing that many Russians now credit Putin’s firm-fisted style for the country’s prosperity. Yet this growth, the article says, has been shadowed by worsening social and political benchmarks—including growing violent crime, an eroding health care system, and ingrained corruption.
Weigh in on this issue by emailing CFR.org.
Explore international efforts to curb nuclear proliferation with a new interactive from CFR's program on International Institutions and Global Governance.
To order Task Force reports, Council Special Reports, and Critical Policy Choices, please call, fax, or order online from our distributor, the Brookings Institution Press: phone +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for general publications information, please call +1.212.434.9516 or email publications@cfr.org.
In War of Necessity, War of Choice, Richard N. Haass contrasts the decisions that shaped the conduct of two wars between the United States and Iraq involving the two presidents Bush and Saddam Hussein, and writes an authoritative, personal account of how U.S. foreign policy is made, what it should seek, and how it should be pursued.
In Cuba: What Everyone Needs to Know, Julia E. Sweig presents a remarkably accessible portrait of Cuba’s unique place on the world stage over the past fifty years, including its internal politics, its often fraught relationship with the United States, and its shifting relationship with the global community.
As Ray Takeyh shows in Guardians of the Revolution, behind the famous personalities and extremist slogans of Iran is a nation that is far more pragmatic—and complex—than many in the West have been led to believe.
Complete list of CFR Books
This report finds that nuclear weapons will remain a fundamental element of U.S. national security in the near term, and makes recommendations on how to ensure the safety, security, and reliability of the U.S. deterrent nuclear force, prevent nuclear terrorism, and strengthen the nuclear nonproliferation regime.
About Independent Task Forces at CFR
Complete list of Task Force reports
The Canadian oil sands present an important challenge to policymakers: they promise energy security benefits but present climate change problems. Michael A. Levi assesses the energy security and climate change effects of the oil sands and makes recommendations for U.S. policymakers within the context of broader bilateral relations with Canada.
This report explores an important element of the maritime policy regime: the United Nations Convention on the Law of the Sea. Author Scott G. Borgerson examines the international negotiations that led to the convention, the history of debates in the United States over whether to join it, and the strategic importance of the oceans for U.S. foreign policy today.
Complete list of Council Special Reports
To request permission to reprint or reuse CFR material, please fill out this permissions request form (PDF), referring to the instructions on page 1.
Copyright 2009 by the Council on Foreign Relations. All Rights Reserved.