Russia’s Historic Oil Boom and the Changing Ownership in the Oil Sector

• In Event: Russian Political Economy: Arctic, Oil, Welfare and Pension

Abstract

President Putin has presided over a historic oil boom that coincidentally started with his ascent to power. The boom has brought an unprecedented amount of windfalls for the Russian economy. Oil exports alone have brought Russia nearly 3 trillion dollars between 2000 and 2018. This wealth brought by oil has been inevitably accompanied with political battles. One set of battles has been about control over the oil industry’s rent generating assets. These battles have involved continuous changes in ownership in Russia’s oil sector. These changes in ownership have turned out to be much more complex that do not allow to characterize Russia’s case as just another example of rising resource nationalism.

The complexity and the peculiarity in Russia’s case have been on several grounds. When Putin succeeded Yeltsin as Russia’s new president, he inherited an oil sector that had been almost fully privatized. This was a rather unique model to develop an oil sector: unlike in many developing countries, Russia’s oil sector was dominated neither by international oil majors nor national oil companies. Instead, a handful of privately owned indigenous companies had managed to establish control over most of the industry’s oil assets. During the Putin era, ownership in the oil sector has been subject to continuous changes. In several phases of nationalizations, Putin transformed ownership in the oil sector. Yet, each case of nationalization has differed substantially from the other on many dimensions. The winners, the fate of the previous owners and whether and how they were compensated have varied drastically across the half a dozen cases of nationalization. Furthermore, Russia has not evolved toward a full-scale nationalization of the oil sector, as state-owned majors have continued to co-exist with private ones. Quite unexpectedly for many, the largest state-owned oil company (Rosneft) eventually got subject to privatization, while nationalization continued in the meantime, adding further complexity to Russia’s case. Overall, the state’s approach to ownership in Russia’s oil sector has remained fundamentally unstable, resulting in numerous shifts in who generates the country’s oil wealth.

This case study on Russia explores a fundamental question: what explains the continuous instability in terms of the ownership setup in Russia’s oil sector? To address this question, the paper examines Russia’s institutional setting and explores how the evolution of ownership in the oil sector could be related to the incumbent’s political strategy of survival. This case study could enrich understanding of what drives changes in ownership in the resource sector in major energy exporting nations, and what explains “policy instability” with respect to ownership over time.

Author

• Adnan Vatansever, King's College London