Business Interests and the Broader Political Agenda
By: Jay La Plante
Tags: Intro, Russia, Energy, Oil And Gas, Foreign Policy

Hydrocarbons have been central to Russian economic development following the collapse of the Soviet Union in 1991. Aided by foreign direct investment from North America and Western Europe, the Russian energy sector began to modernize during the turbulent 1990s and liberalize as a result of the loans-for-shares initiative from the Yeltsin administration in 1996 (McFaul, 1997). This restructure enabled the sector to take advantage of global windfalls in market prices in the early to mid-2000s, which supported the growth of state expenditures as the Federation experienced greater political and economic growth vis-à-vis its counterparts in both the G8 and the OECD (Saradzhyan, 2016). Despite the downturn in global market prices over the past decade due to the Great Recession and the Shale Revolution, the energy sector continues to represent a significant revenue stream for the Federation’s state expenditures and a significant portion of its Gross Domestic Product.

Similarly, hydrocarbons have played a large role in the United States. The petroleum and natural gas sector represents about 8% of the overall Gross Domestic Product and directly supports 6% of the U.S. workforce (American Petroleum Institute, 2018). Given its weight in the economy, the sector uses its capital to invest in significant lobbying efforts at all levels of government. In the period 1998 to 2018, energy firms, largely led by the hydrocarbon sector, spent $2.2b in federal lobbying efforts (Open Secrets, n.d.). As a result of the Shale Revolution, the United States has managed to sustain hydrocarbon production levels at historic highs, propelling it to the position as the leading global petroleum and natural gas producer, taking the title from the Russian Federation in 2011 for natural gas production and in 2013 for combined petroleum and natural gas production (Brown & Kahan, 2019). In 2018, the United States overtook Saudi Arabia as the global leader in total petroleum production (Brown & Kahan, 2019).

Although Russo-American relations have historically rarely been more than cordial, relations dramatically soured during the Bush administration over differences in foreign policy, in particular concerning West and Central Asia and the European states of the former Soviet Union. NATO’s expansion to the Baltic states of Estonia, Latvia, and Lithuania in 2004 represented the first time that a state of the former Soviet Union joined the U.S.-led military bloc. This elicited strong wording from President Putin that the balance of power had shifted to the extent that it inhibited the Federation’s ability “to implement its political commitments to military containment in the north-western part of the Russian Federation” (as cited in Fedorov, 2013). Former Prime Minister Primakov had stronger words for the expansion, stating that it amounted to “containing” and “weakening” the Federation (as cited in Fedorov, 2013).

The Obama administration attempted a “reset” of relations in 2009, with Secretary of State Clinton and Foreign Minister Lavrov symbolically pressing a red “reset” button in Geneva. However, ties rapidly cooled by 2012 due to mutual mistrust and intersecting objectives. Treatment of political dissidents and the two parties at odds over the Syrian Civil War pushed relations past the breaking point. In 2012, Congress passed the Russia and Moldova Jackson-Vanik Repeal and Sergei Magnitsky Rule of Law Accountability Act of 2012 (Magnitsky Act), which represented the first major piece of sanction legislation (bills) against the Federation under the Obama administration. The Magnitsky Act was named in memoriam for Sergei Magnitsky, a Russian investigative journalist who was murdered in 2008 while investigating corruption; enactment of the Magnitsky Act resulted in the targeting of Russian political leaders whom the United States held responsible for his death.

Two years later, the Euromaidan in Ukraine (November 2013–February 2014) and the 2014 Ukrainian revolution exposed Ukraine as a key focal point in a proxy war between Moscow and Washington for European influence. In early February 2014, Russian intelligence leaked a phone conversation between former Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland and former U.S. Ambassador to Ukraine Geoffrey Pyatt that confirmed U.S. involvement in selecting the next leadership of Ukraine and playing a deeper role in the crisis than that of the neutral mediator it was projecting (BBC, 2014). The 2014 annexation of Crimea several months later and the ensuing War in Donbas kickstarted additional Russian sanctions with Western European support and cooperation. In March 2014, the Obama administration issued three separate executive orders (13660, 13661, 13662) targeting the Russian Federation in relation to Ukraine, followed by the signing of congressional sanctions legislation in April and December and a fourth executive order in December (U.S. Congressional Research Service, 2020). These sanctions represented the first time that the Russian hydrocarbon sector had been targeted by the United States since the Soviet-era Yamal pipeline embargo imposed by the Reagan administration from 1980–1984. Executive and congressional sanctions continued to be imposed against the Federation through 2018 in response to various actions taken by the Putin administration. These efforts included targets in both the energy sector and the political elite.

References:

American Petroleum Institute. (2018). Oil & natural gas: Supporting the economy, creating jobs, driving America forward. https://www.api.org/~/media/Files/Policy/Taxes/DM2018-086_API_Fair_Share_OnePager_FIN3.pdf.

BBC. (2014, February 7). Ukraine crisis: Transcript of leaked Nuland-Pyatt call. https://www.bbc.com/news/world-europe-26079957

Brown, B., & Kahan, A. (2019, August 20). The U.S. leads global petroleum and natural gas production with record growth in 2018. Today in Energy, the U.S. Energy Information Agency. https://www.eia.gov/todayinenergy/detail.php?id=40973.

Fedorov, Y. E. (2013). Continuity and change in Russia’s policy toward Central and Eastern Europe. Communist and Post-Communist Studies, 46(3): 315–326. https://doi.org/10.1016/j.postcomstud.2013.06.003.

McFaul, M. (1997). Russia’s 1996 presidential election: The end of polarized politics. Hoover Institution Press.

Open Secrets. (n.d.) Lobbying: Top Industries. https://www.opensecrets.org/lobby/top.php?indexType=i&showYear=a.

Saradzhyan, S. (2016). Is Russia declining? Demokratizatsiya, 24(3), 399–418. https://muse.jhu.edu/article/628611.

U.S. Congressional Research Service. (2020). U.S. sanctions on Russia (CRS Report No. R45415). Retrieved from https://fas.org/sgp/crs/row/R45415.pdf.