Russia to stop supplying cheap oil and gas to CIS

According to this Moscow Times report, the Russian government has decided that it should no longer supply gas and oil to Former Soviet states at a discounted rate.

"As market reforms proceed in our countries, we will be increasingly basing our intergovernmental … and economic relations on world practices," [Foreign Minister Sergei] Lavrov said at a news conference after chairing a meeting of foreign ministers from the Russian-dominated Commonwealth of Independent States, a loose coalition of 12 former Soviet republics.

Russia has been using oil and gas sales to other CIS states as a policy tool for years.  Officially, it’s because CIS states are poor and, without Russian generosity, would not be able to afford to heat their homes, light their cities, and run their factories.  But in reality it is has been used as a tool of dominance – sell them cheap oil and they’ll be afraid to upset Mother Russia because we’ll suddenly put up the price and wreck their economy, goes the logic. 

Unfortunately, it doesn’t work very well. The policy facilitates the development of an elite subservient to Moscow – which, admittedly, is a part of Russia’s plan.  But unfortunately, because those elites rely more on Moscow for their political legitimacy than on the local population, their position is fragile at best. 

And Moscow is belatedly realising this:

“Russia is not happy with the situation when in fact it subsidizes the economies of certain countries by supplying them with energy resources at discount prices while their people remain impoverished,” the Kremlin source said. “Such situations create grounds for ’Orange Revolutions’ which change little in people’s lives but bring to power rulers, some of whom are … in the pay of the United States,” the source told the state-owned news agency.

So, from Russia’s position, to start selling oil and gas at market prices makes complete sense – why throw money at these elites if all it is going to do is create conditions for an orange revolution?  The problem is, of course, that by withdrawing the cheap handouts that support political elites, Russia will be forcing elites to look within their own country for sources of political legitimacy.  And that could well means democratic legitimacy…

The optimist in me likes to think that Russia has realised that democratic progress in its near abroad is inevitable, so it might as well make some money from it.  The cynic in me wonders whether the Kremlin will have the courage to do so, and whether it will continue with its policy of propping up elites by some other means.

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1 Response

  1. varske says:

    Doesn’t it also mean that if prices rise these elites are likely to be overthrown and cause trouble on the border or for Russian minorities in the country?

    And if you take the logic far enough, shouldn’t people at home also pay these prices as well, or would that really put the democatic cat among the pigeons?

    Or is it just simple greed when oil prices are high to milk whoever you can? If oil prices were low it might be a good reason for using your arguments, but now they are high it will be a double burden.

    But being really cynical, could this be a leak with a threat to implement much higher prices to gauge the reaction, then to implement some “not so high” prices so people heave a huge sigh of relief? A frequent tactic before the Budget in Britain!