Resource revanchism : the privatization and renationalization of the Russian oil industry

The Russian oil industry has long been one of the most prominent and valuable oil sectors in the world. Under the Soviet Union, the oil industry was subject to tight state control. Prices and production targets were determined by political leaders in Moscow, not market signals. The 1995 industry privatization after the collapse of the Soviet Union resulted in many industry assets being auction at extremely discounted prices to a few connected businessmen. Some of the new oil company owners quickly invited Western companies to partner in Russian plays. The differences in Western business culture, oilfield operations, and profit-seeking behavior created tremendous resentment among the rank-in-file Soviet-era oilmen. They, along with conservatives, believed their skepticism of Western involvement was vindicated by a devastating Russian recession in the late 1990s. This economic crisis paved the way for Vladimir Putin’s election in 2000. A former intelligence officer with a desire to reassert Russian influence on the global stage, Putin quickly sought to recapture state control of the oil sector. By the end of his first term in 2004, Putin had orchestrated the fall of the most prominent oligarch, Mikhail Khodorkovsky, and his oil company Yukos, funneling its most valuable assets into a new state oil champion, Rosneft. The path of the Russian oil industry from fully state-owned enterprises to private companies and back to falling under heavy state influence underscores the importance of oil as a resource to the Russian state and, most importantly, how the long history of strong, autocratic governance in Russia affected its relationship with foreigners, served as the impetus for renationalization in the 2000s, and continues to influence the Kremlin’s view that Russia’s energy industry is, first and foremost, a tool of the state.