Tuesday, December 11, 2007

Russia, Inc.

The overnight reaction to yesterday's endorsement by Russian President Putin of the Chairman of Gazprom as the next President of the Russian Federation reminds me of Lady Thatcher's comment after her first meeting with Mikhail Gorbachev, "We can do business together." I am struck by the deep weirdness of this announcement, which will surely have important implications for energy. It's impossible to imagine an American analog to such an event. Perhaps in some alternate universe President Bush is so popular that he could designate the Chairman of the country's largest energy company as the Republican nominee to succeed him, and have his choice be seen as a virtual shoe-in to become the 44th President of the United States, but this certainly has no counterpart in our reality. Yet that is effectively what seems to be playing out in Russia, in the wake of a landslide victory by Mr. Putin's party, United Russia.

High oil prices and the resulting growth of energy revenues have led the resurgence of Russia's economy during President Putin's second term, and the threatened or actual manipulation of energy flows has become a major lever for projecting Russian political influence beyond the country's borders. By some measures Russia already plays as pivotal a role in global energy supplies as Saudi Arabia. With the world's largest reserves of natural gas, it furnishes roughly 60% of Europe's natural gas imports, and its 2006 oil exports were only 25% below those of the Saudis. While Russia may no longer be a superpower, geopolitically, it has become one in energy terms.

If Russia under Mr. Putin emerged as one of the world's largest petro-authoritarian states, as Tom Friedman puts it, what is it likely to become under the leadership of the chairman of the board of the country's largest energy concern? And am I the only one struck by the added irony of a former German Chancellor playing a key role in the operation of that business? Still, Dmitry Medvedev is not one of the siloviki, and he apparently has legitimate democratic credentials. Considering all the speculation about the likelihood of Vladimir Putin putting forward a non-entity as President, so that he could shift Russia's locus of power to whatever new role he chose for himself, Mr. Medvedev is an interesting choice as Russia's next President.

While the Washington Post focuses on his loyalty and close ties to Mr. Putin, going back to their time together in the former Leningrad, where both served in the mayor's office, Gazprom under Medvedev has been far from passive. Whatever the internal politics of this choice, it is also an implicit recognition of the importance of energy markets to Russia's current and future success, and Mr. Medvedev has participated in a very assertive approach to those markets. Even as Russia's internal growth consumes more of its energy output, it will remain a major force in energy markets for the foreseeable future. With Mr. Medvedev at the helm, energy seems certain to play at least as large a role in the country's economic and foreign policy as it has under President Putin.

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