How Oil is Propping Up Putin

The dirty little secret of the Russian leader’s success? $116-a-barrel oil

If you’re trying to understand the recent protests against the Putin regime in Russia, one of the best guides is an outspoken columnist who has been writing trenchant essays in the nation’s leading newspapers over the past month. “Political competition is the heartbeat of democracy,” he writes, noting the absence of such competition in contemporary Russia. He describes Russia today as “very different from what it was in the early 2000s,” with a middle class that is now economically stable and connected to the world and is demanding political rights. “Today, the quality of our state does not match civil society’s readiness to participate in it,” he writes.

On corruption, perhaps the issue that most riles the public, the author is scathing. “The problem is much more profound [than that of individual corruption]—it comes from the lack of transparency and accountability of government agencies to society ... In the turbulent 1990s teenagers dreamed of becoming oligarchs, but now they opt for state official ... Many view public service as a source of fast and easy cash.” All these challenges to Russia’s development can be overcome, says the writer, only through more political competition, real rule of law and openness and transparency. What makes this deeply strange is that the author of these essays is Vladimir Putin, the architect, builder and chief enforcer of the system that he critiques.

Putin seems to understand Russia’s problems better than your average dictator. But he does not seem to understand that he is the source of those problems in many people’s eyes. In Putin’s worldview, he is the savior of modern Russia, the man who stopped its descent into chaos and poverty in the 1990s. His opponents see him as a warmed-over KGB apparatchik presiding over a new, improved Soviet state. Neither view is entirely accurate. The real hero of Russia’s rescue was oil. The dramatic rise in the average Russian’s income has been a consequence not of Putin’s policies but of oil prices. Russia’s future—and Putin’s—will likely depend on this factor and not on Putin’s skills, the opposition’s strengths or the power of Facebook.

The price of oil when Putin came to office was $27 a barrel. From that point it began an almost unbroken rise and is now $116. And oil is the lifeblood of Russia’s economy, providing two-thirds of its exports and half of federal revenue. It’s not just oil: 85% of Russia’s exports are raw materials or primary commodities, and their prices have also risen to unprecedented levels over the past 10 years. The Russian state has used the revenue to dole out largesse across the country. It is widely believed in the West that Putin stays in power through repression. In fact, he does so in larger measure through patronage and bribery.

Bribery works. Look around the world and you will notice that the Arab Spring has not disturbed the region’s oil-rich dictatorships and monarchies. With the exception of Libya—a chaotic regime that was headed by a crazy man—not one of the governments that have fallen has significant oil revenue. Saudi Arabia, the Gulf states, Iran, Venezuela—all have survived.

In the short run, Putin will be able to win the March election and consolidate power through a mixture of repression and patronage. His problems are more long-term. His government has ramped up its revenue to the point that it now needs oil to approach $125 a barrel simply to balance its budget. Russia’s demographics are terrible; a population that is aging and shrinking means pension and health care costs will rise dramatically as people retire. Labor productivity in Russia is abysmal, which means new investments and new, non-oil industries are essential to the country’s growth. The Caucasus region is almost turning into a separate country, and Russia’s ethnic diversity is straining its sense of nationalism. All these points are raised frankly and directly by Putin in his essays. But the only way to solve those problems involves dramatic changes in the structure of state power and control.

Few rulers intentionally commit hara-kiri. In an essay in the recent National Interest, Fiona Hill and Clifford Gaddy point out that Putin has often compared himself to Pyotr Stolypin, the reformist Prime Minister under the last Czar, Nicholas II. It’s an intriguing choice. Stolypin, who was viciously attacked during the Soviet era as reactionary and repressive, advocated incremental, evolutionary reforms in the last years of czarist Russia. It’s worth noting that Stolypin was sacked and then assassinated, and the regime he tried to keep in power was swept aside by the tides of history. But history may not repeat itself in Russia until oil prices stop levitating.