This allowed Russia to profit domestically and internationally

This paper analyzes how natural resources
have helped Russia economically and politically. Russia has gone through many
significant changes since the collapse of the Soviet Union. Oil and natural gas
has provided Russia with many new opportunities of business however, Russia
faces many challenges of the sudden price changes in oil and structural
limitation.

Russia has gone through
many significant changes since the collapse of the Soviet Union. Today, Russia
is one of the world’s leading producers of oil and natural gas (Buneman, 2009).

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Oil and natural gas has brought Russia economic and political gain. After the
rise in prices of natural gases for much of this decade, Russia’s economy
profited from petrodollars and increased exports. Russia’s control of the
existing pipeline distribution network allowed the country to be in a position
as a major supplier for neighboring countries and gain political power. An increased
demand for oil and natural gas from Asia and Europe has created a new opportunity
for greater profits. However, Russia faces a challenge of falling oil prices
and new pipelines. Opportunities arise from both greater demands in the
increasingly profitable European markets as well as the emerging Asian
economies seeking to access Russia’s pipelines. However, the recent decline of
oil and gas prices threatens Russia’s future prosperity and Europe’s fears of
becoming dependent on Russian gas have created the idea of new pipelines that
avoids being dependent on Russia altogether.

Oil and natural gas
exports have been one of Russia’s staples for decades. However, during the
years leading up to the collapse of the Soviet Union, production fell sharply
(Drum, 2011). After the financial crisis and the collapse of the ruble, Russia
became one of the largest contenders on the world oil markets due to an
increase in both foreign and domestic investment. Foreign companies like Exxon
Mobil and domestic firms like LUKOil has worked on improving the pipeline
networks, infrastructure, and drilling technology (Krauss, 2012). The
investment by these foreign and domestic companies has allowed Russia to profit
domestically and internationally from exports. Additionally, the invasion of
Iraq by the United States sent the world price of crude oil to historic levels
(Ahmed, 2014). The combination of investments by domestic and foreign
companies, increased export capacity and volume, and record-setting oil prices
has fueled Russia’s economic expansion.

Although oil may be one
of the staples in Russia’s economy, it faces many problems. These problems
include low labor productivity, high production costs, and accessibility
issues. On top of these issues, in the long run, Russia cannot compete with
OPEC’s production capacity and reserves (OPEC v Russia, 2001). Russia must
instead focus on natural gas, as it’s true advantage lies there. Russia is the
world’s largest exporter of natural gas and its reserves  (Duddu, 2013). Key to this competitive
advantage in natural gas is Gazprom, the largest gas company in Russia (OAO
Gazprom). Gazprom is a government owned company with over fifty percent of its
shares owned by the government. This gives the Russian government the power to
set gas prices and establish long term contracts with foreign buyers, making it
the largest earner of “petrodollars”. Gazprom is also one of the largest sources
of revenue for the government. Twenty four percent of Russia’s budget has been
created through Gazprom’s revenue (OAO Gazprom). The economy has averaged 7% of
growth during 1928-2008 as oil prices rose rapidly.

Russia since the
collapse of USSR had found a new economic growth since then, by being a
position as a main supplier of gas and oil for neighboring countries. The
former soviet country borders fourteen countries (Buneman, 2009). With Russia
bordering between fourteen countries, their gas distribution networks runs from
the Caspian Sea to North Russia, Asia to Europe. Currently Russia’s Druzhba Pipeline,
the largest in the country, runs from south Russia where it collects from the
Caspian Sea and the Ural Mountains, through Ukraine and to central Europe and
Germany (Simopt). Gazprom’s exclusive control of this network, has allowed
Russia to gain a significant amount of control over the supply of gas to Europe
and Central Asia.

Moreover, Russia is a
sole provider of gas for Belarus, Bulgaria, Estonia, Ukraine, Slovakia, etc. In
2004, over ninety percent of Russia’s seven trillion cubic feet of gas exported
went to European countries (Gelb). This control of the flow and direction of
oil and gas to Europe and central Asia has allowed Russia a significant amount
of political power. In adittion to a significant amount of political power, Russia’s
ability to dictate gas prices in the form of long-term contracts with other
countries has given it a political advantage in international relations. 

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