How did it get to that point? Between the beginning of the twentieth century and 1974, the country was the world leader in oil production, but it was never mentioned as a nation that suffered from the resource curse. But, the Soviet Union was pursuing another goal that was, according to its leadership, just as important: the creation of a powerful military-industrial complex that was independent from the West. 80 See, for instance: Joyce M. Dargay, Dermot Gately and Hillard G. Huntington, “Price and Income Responsiveness of World Oil Demand, by Product,” Energy Modeling Forum working paper EMF OP, vol. Transportation of gas demands huge capital expenditure on constructing gas pipelines and compressor stations, but the marginal cost of its extraction and transportation are relatively low. Indeed, with the start of the resource boom in the 2000s, the government in Russia has started to rapidly strengthen, which is showcased by the Yukos case and the increase of the government’s participation in the oil sector. In the second scenario of 2 percent annual growth of marginal production costs the rent does fall, but insignificantly. 34, no. 87 Also, the intensity of using of atomic and hydro energy. Essentially, it largely determines the political economy of the society, which lives off resource rent. 02 (1999): 297-322. The principal price hike took place in January 1974: from $4.31 to $10.11 per barrel (see figure 2). 35 (Centre for Russian and East European Studies, University of Birmingham, 1993). Only a separate measure like this could serve as a catalyst for economic diversification (although one could object that some processing industries such as the chemical and metallurgical industries create highly negative externalities through ecological damage). по: Soviet Legacy on Russian Petroleum Industry. 1 (1996): 9-41. On the whole, assuming that the Soviet economy grew at the same rate as the Japanese economy, it would still hardly be able to export considerable amounts of oil in the 1970s and 1980s. Other huge deposits were explored shortly after this, including the immense Samotlor field in 1965 (it was rapidly put into service; the first industrial well was completed in April 196840). It appeared that oil allowed the USSR to live through the 1970s. . 62 Izvestiya, October 15, 1984 (as cited by Goldman, 42). 91 (as cited by Slavkina, 269). Here, we would like to conduct an in-depth analysis of the origins and progress of the Soviet Union’s oil and gas dependence in order to reach a deeper understanding of its parallels with the oil and gas dependence of modern Russia. 4 See M. Harrison, Soviet Planning in Peace and War, 1938-1945 (Cambridge, 1985), appendix 4. The USSR’s population was much bigger than Russia’s, almost 242 million in 1970 and 292 million in 1991,118 which is 68 percent and 103 percent higher than the Russian population in 2014.119 This means that oil and gas output per capita was much smaller (2.12 tons/person per year in 1989 against 3.72 tons/person per year in Russia in 2016).120 At the same time, in the 1970s, about 80 percent of the Soviet Union’s earnings in hard currency came from oil and gas, which can be compared with modern Russia. Resources were delivered in the wrong composition, were presented in the wrong order, and then often used for a purpose other than that for which they were intended. For instance, at a Politburo session in May 1984, then premier Nikolay Tikhonov said: “The oil we sell to capitalist nations mostly goes to pay for alimentary and some other goods. Surkov.”37, Thanks to the Beryozovo oil blowout, the presence of oil and gas in the Western Siberian Plain was proven for the first time. During winter, temperatures drop to -30˚C (-22˚F)—and sometimes to -50˚C (-58˚F)—and there are strong northerly wind squalls. Information flows were moving mostly vertically, not horizontally. Consciously damaging them in order to prevent Nazi Germany from using them had put the Soviet Union’s oil availability at risk (lend-lease supplies helped a lot) and also led to a steep drop in production after the war. There were ongoing debates about the resource dependence of the Soviet, and later, Russian economy. The energy component of most products’ prime costs was reduced to 5-7 percent, which greatly decreased the incentives to save energy resources. 101, no. In the third quarter of 1941, production in ammunition was almost three times its level in the first quarter of the same year, On July 22, 1941. In the mid-1980s, the ratio between the average wholesale price on crude oil and the retail price of 93-octane petrol was about 1:17. The incapability of governments to take steps to turn the resource curse from a liability into an asset became the biggest brain-teaser in the resource curse theory.20. Hitler had two choices: either it get by on alternatives - such as producing synthetic oil from coal, which Germany had in abundance - or secure oil through conquest. This city was part of a khanate that was annexed by the Russian Empire at the beginning of the century. This posed the question about whether the appearance of large oil and gas revenues had actually made the mentioned drawbacks of the planned economic system worse. In the latter case, the economy is highly dependent on the global market (and its consequences, such as Dutch disease and extremely high volatility of resource prices and capital flows). The next day, the mobilization plan for the production of ammunition was put into effect, and on June 24, at The Council of People's Commissars of the Soviet Union, the Council for Evacuation is created. On September 11, a resolution was adopted "On construction of industrial enterprises in wartime conditions" On December 26, 1941, the Presidium of the Supreme Soviet of the Soviet Union adopted a decree "On the responsibility of workers and employees of military industry enterprises for unauthorized departure from enterprises" and on February 13, 1942, on "Mobilization for work in industry and construction." Technological rent apparently doesn’t cause these developments in such an over-the-top way. whether it’s subject to long-term stagnation (Prebisch-Singer thesis has to do with this problem), whether the emergence of this rent undermines the development of other activities (this is linked to Dutch disease: it’s called a disease because sharp growth of the raw materials sector undermines the growth opportunities of other sectors of the economy in the long term), which incentives it creates for economic agents regarding participation in production activity or rent-seeking activities (in various ways, from engaging in corruption to armed conflicts). During World War II, there were no exports; in 1946–1949, exports were also almost nonexistent (0.5–0.9 million tons), and they only slightly exceeded 10 million tons in 1956.93. In the beginning of the 1880s, about 200 oil refineries were active in Baku’s new industrial suburb with a suitable name, the Black City.”30, At the turn of the twentieth century, the area around Baku was the world’s biggest oil-producing region. The increasing imports made the Soviet Union include large volumes of oil and gas (mostly oil) exports in future plans. This resembles Giffen goods—goods for which the amount of demand rises along with the increase in their price. Mikhail Gorbachev, the last Soviet leader, seemed to realize that the state energy policy was one of the main causes of economic problems. However, the planners (Gosplan staff) who were not interested in boosting the profits of state-run enterprises as business owners in capitalist countries are, still responsive to incentives, albeit with delay. He claimed that the struggle to curb the economic downturn rates had led to excessive spending on the expansion of the fuel and energy complex and boosted supplies of new resources and their irrational use.79 According to Gorbachev, one of the main directions of this was the excessive export of energy resources. 56 Viktor Andriyanov, Kosygin (Moscow: 2004), 238 (as cited by Slavkina, 271). . The mechanism at the heart of Dutch disease assumes that the movement of labor and capital to the resource sector only takes place when this sector experiences a boom, or, more precisely, until the returns on the invested capital are higher than in other industries. In Gorbachev’s mind, Leonid Brezhnev was the main person to blame for this. For instance, Nurske and Watkins wrote about the “get-rich-quick mentality” among the entrepreneurs and the “boom-and-boost” psychology among the politicians, which can be described as a rotation of excessive optimism and harsh austerity.24 Because of that, the resource curse can lead to instable economic policy. [In this year], [the authorities] allocated 31 percent more of capital investment than in 1985” (the 1986 output amounted to 615.4 million tons, that is, only 3.1 percent higher than in 198515)16 This also meant that the rent from each additional ton of oil tended toward zero (and probably was occasionally negative). 114 Georgy Arbatov, Man of the System (Moscow: Vagrius, 202), 313, 315 (as cited by Slavkina, 327). The government (represented by the State Committee on Prices, interacting with industry-specific ministries) was setting domestic prices in the Soviet Union for extended periods of time. As for oil production in the Baku area, it failed to reach the pre-war (1940) level even in 1966, the post-war peak. In 1991, the Soviet Union collapsed, but the debate on the role of oil and gas dependence is still a huge issue. Mechanisms of extracting and distributing rent in the USSR were quite unusual and mostly hidden. The increase of the oil sector’s share in the whole energy complex was not as surprising; it rose from 31.4 to 40.6 percent.13. This happened, among other things, at the expense of the shift of primary energy consumption from coal to oil and gas (the share of coal was reduced from 52 percent to 24 percent86). Thus, it still would not stop volatility in the economy. The oil sector workers who supported the demand were called “optimists,” and those who were against it were called “pessimists.” As Valeriy Grayfer, the last head of the Main Tyumen Oil and Gas Department (Glavtyumenneftgaz), recalled, “it was fairly dangerous to be dubbed a ‘pessimist’. Citation error. There were however, even more millions of employed workers in agriculture, transport and industry that directly supplied the Red Army. In 1977, the CIA prepared a set of reports that forecasted, in particular, a decline of oil output in the Soviet Union to 400 million tons, which would have made the country a net importer of this resource.48 However, this forecast was far from reality (in 1987, the country produced 625 million tons49). They can also be applied to understand why Russian taxpayers were not particularly interested in controlling the efficiency of state expenses in the 2000s (and still aren’t): high resource rents allowed taxation to be kept low, creating relatively low costs for taxpayers. Strategic bombing of Ploiești began on June 26, 1941 when 17 bombers were sent from Crimean airfields. They also suppose that the total oil and gas rent made up about 40 percent of the USSR’s budget. In the first case, the difference made up about eight years (from 1974 to 1982), and in the second one, it was also about eight years (2000–2008). As the resource rent of a country often (but not always) weakly depends on its actions, it often leads to the above-mentioned “get-rich-quick mentality” among entrepreneurs and “boom-and-boost” psychology among politicians. In the same way, the cost of production is not the reported cost of production at any moment of time, but the cost that could have been established under the efficient organization of the industry, i.e. Indeed, its oil production in 1965 (173.5 million tons) was still far from the maximum that it reached ten years later (about 225 million tons). There were two periods of huge growth: between 1974 and 1981 (from the start of the first price shock until the drop of prices after the second price shock) and between 1999 and 2008 (that coincided with the start of the Russian economy’s rapid recovery after the 1998 crisis), which were then followed by sharp downturns. This was militarily and economically. They could cure Dutch disease by conducting tough fiscal policy, temporarily providing subsidies to the agriculture and processing industries, and keeping the unforeseen resource revenues in foreign currencies in order to prevent the strengthening of the national currency. . 7, 393. Crude oil output in Russia amounted to 600,000 barrels in 1874 and reached 10.8 million barrels within a decade, which equaled to about a third of the USA’s output. 58 G. Vakhitov, “Half of century of Domestic oil Production: from Soar to Crash,” in Oil of the Soviet Nation: Problems of History of USSR Oil Indistry (1917-1991), edited by V. 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