Good Example Of Research Paper On The History Of Oil In Russia
Today the future of the Russian economy is uncertain because of the more than fifty percent decrease in oil prices in less over the last year. The Russian economy relies almost completely on oil and natural gas as its source of funds and that is a dangerous position to be in as the United States as nearly filled its oil storage units in recent days and the overabundance of supply does not seem to be leveling off anytime soon. This analysis will examine what brought oil to the forefront of the Russian economy during the 20th century and what ups and downs the industry has faced over the last century.
Oil fields were discovered in the Baku region of Russia in the 19th century and once the monarchy realized that oil might be able to raise Russia’s status to that of the more developed nations they asked the United States and United Kingdom to help them develop their newly discovered oil fields. During the end of the 19th and beginning of the 20th centuries oil production rose significantly and became a substantial part of the Russian economy. This was exceedingly important for the nation because it had not progressed as quickly as other countries industrially due to the rural nature of the country regardless of its large population. Oil production was the jumpstart that the Russian economy needed in order to begin catching up to the other more developed nations and by the beginning of the 20th century the prospects for the nation’s oil industry were good. As a result of more liberal foreign relations allowing Russia to extract its reserves, oil production steadily increased from the extraction of 0.3 million tons per annum in 1880 to 11.3 million by 1910 with only one major interruption. The momentum that the industry had begun to build up was nearly abolished in 1905 during the first Russian revolution when industrial sites in the Baku were set afire. According to a book by Vagit AlekPerov “The Neftyanoye delo also presented the following data: “By our approximate calculation, total oil production in 1905 was expressed as 410 million poods [49.2 million barrels], 216 million less than in 1904”. This was a major setback for the Russian oil industry that took several years to recover from but by 1910 they were again producing large amounts of oil after the oil companies and government took exhaustive emergency measures to rebuild what had been destroyed.
After the Bolshevik revolution of 1905 the world became fully aware that economic stability was exceedingly important if Russia was to remain one of the world’s leading oil producers. The period from 1910 to 1917 saw a stalling of increased oil production in the nation due to political turmoil and ineffective drilling efforts in new and existing reserves. It is important to remember that technology was not nearly as advanced so while it is not uncommon to see a 99 to 100% drilling success rate by companies today thanks to new imaging software there was much more trial and error during the beginning of the 20th century. In 1917 the monarchy was officially dismantled and the Bolsheviks lead by Vladimir Lenin came into power to create a communist state that would last for the next several decades. This revolution included nationalizing the crude oil industry and making it a priority to the government of Soviet Russia.
After the Bolsheviks came into power Russia was cut off from oil trading but in 1922 Stalin came into power and “Under Stalin the Soviet Union developed heavy industry, sciences, nuclear technologies. Stalin transformed the weak and ruined agricultural country into the powerful industrial state” With the rest of the world and especially the United states not permitting the purchase of Russian oil Production declined until the late 1920s when companies began prompting interest in relationships with Russian producers. Ivy Lee, the public relations manager for John D. Rockefeller Sr. was especially vital in the shift of public relations towards Russia during this time. Lee became a key component in Rockefeller’s efforts to exploit opportunities to gain a foothold in the Russian oil industry. Despite economic turmoil Russia continued to increase oil production over the next two decades, producing over 34 million tons during 1940.
After the Second World War Russian oil production began to modernize and multiply exponentially. Oil companies became more adept at drilling and increased the number of wells by nearly seven hundred between 1946 and 1950 with the time needed to drill a well decreasing to only seventy days. Russia was becoming an oil producing powerhouse yet again. “Between the 1950s and 1960s, Soviet oil output had doubled, making the Soviet Union once again the second-largest oil producer in the world oil exports started to make up nearly half of Soviet export income”. This was largely due to the fact that the Soviet governmental system kept labor costs incredibly low allowing them to offer oil at much lower prices than the Middle East which appealed to the western world. However some authors say that this strategy was more about gaining power than adding money to the Russian economy. Russia wanted the western world and Soviet Bloc to depend on them as a source of energy. By 1965 the Soviet Union was producing over 266 million tons of oil each year, a far cry from only half a century before.
In the late 1960s and early 1970s “the center of Soviet oil production shifted from the Volga-Urals region to Western Siberia in the 1970ssurpassing the oil production level of the US. Whereas in 1974 the Soviet Union was producing at 93.2% of the US level (for comparison, the figure was only 20% in 1955), by 1975 the USSR produced 541 million tons, which was 4.5% more than its main competitor”.In the 1970s turmoil and crises in the Middle East prompted a significant rise in oil prices from every producing nation except Russia who was still determined to keep the western world beholden to their supply of crude. In 1975 the Russian leadership finally decided to increase prices in an effort to boost the Russian economy but production increases did not cease and by 1977 the country was producing over 600 million tons of oil per year.
Soviet oil production continued to grow and account for nearly all of the currency flowing into the nation until the middle of the 1980’s when a series of events threatened to destroy the soviet economy almost completely. The price of oil fell drastically with an influx of oil coming from the Middle East in response to President Reagan putting an embargo on Russian Oil. In addition Russia was falling behind when it came to technology in drilling and extraction of oil and gas; because of this they began to raise oil prices both within the country and on exported oil. “Soviet and post-Soviet oil consumption declined a staggering 50% from 1985 to 1995. However, the transition was not by choice but by brute economic force”. Despite these shifts in strategy the Soviet Union still fell from its years of economic prosperity to complete collapse. In 1991 oil prices fell all the way down to $8 per barrel which was lower than production costs for some Russian controlled oil fields. This was a catastrophic blow for the country that went into a complete failure without even the ability to buy livestock supplies. “the Russian energy industry was in disarrayproduction fell by half [by 1995] and the Russian energy sector was divided between foreign groups and the emerging Russian oligarch class”. However by the tail end of the 1990s the Russian oil industry was back on its feet and able to survive a drop back down to $9 per barrel without failing; instead it became more efficient in order to compete with the rest of the world.
At the turn of the century Vladimir Putin became the ruler of Russia and set about making Russia’s most prominent industry successful once more. He brought the energy sector of the country back under state control and then proceeded to help with the sector integrate vertically as the rest of the world had already done. By 2006 crude production had increased by nearly 200 million tons per year and was back to 550 million tons per year, far closer to the historical highs the nation had experienced in the seventies and early eighties. Today Russia faces new struggles as oil prices fall significantly once again one author believes that the country is “experiencing its hardest times since the 1998 Russian financial crisis” and many economists agree as evidenced by the fall of the Ruble’s value and high inflation. Russia is currently struggling and may see another economic depression before prices rise or they are able to adjust to the new market levels should they remain.
Goodrich, Lauren, and Marc Lanthemann. "The Past, Present and Future of Russian Energy Strategy." Stratfor. N.p., n.d. Web. 14 Mar. 2015.
"Russia's Oil and Gas Industry - a Historical Review - Bellona.org." Bellona.org. N.p., n.d. Web. 14 Mar. 2015.
Paranyushkin, Dmitry. "20th Century – Revolution, Communists, USSR, Stalin's Industrialisation." Way to Russia Guide. N.p., 31 Jan. 2015. Web. 13 Mar. 2015.
"Soviet Economic Decline: Did an Oil Crisis Cause the Transition in the Soviet Union?" Hubbertpeak.com. N.p., n.d. Web.
Mirzayev, Elvin. "Sanctions & Oil Prices Bring The Russian Economy Near Collapse." Investopedia. N.p., 21 Jan. 2015. Web. 14 Mar. 2015
AlekPerov, Vagit. "Oil of Russia." Industrial & Engineering Chemistry 7.9 (n.d.): n. pag. Litasco.com.