Russia, Central Asia, and the Caspian: How Important is the Energy and Security Trade-Off?

Abstract

The current financial crisis and sinking oil prices have left Russia in a precarious position with depleted currency funds. At the same time, relations between Russia and the West have become tense over the Georgian conflict and the Ukrainian natural gas crisis. Long-run implications of those events included increased liquefied natural gas (LNG) capacity in Europe, increased likelihood of new pipeline routes that bypass Russia, and significantly decreased value of Russian oil companies. Given the reduced global demand for energy, Russia’s petro-state economy is projected to contract significantly this year. Major companies in the oil industry have debt issues, which will most likely curtail Russia’s oil production, despite Moscow’s decision to back several companies, because of the uncertainty of future investments in projects. The financial crisis has also lost Russia some prestige on the international stage. Russia is no longer in a position to boldly challenge the leadership of Saudi Arabia in the oil market. On the domestic front, the loss of income from the oil and natural gas sector poses problems for those currently in power in Russia, potentially weakening the Dmitry Medvedev-Vladimir Putin power tandem and their political system. Russia must now focus on restoring domestic social welfare or rebuilding its international presence. Whatever Russia’s choice, it will have a great impact on the energy security of the rest of the world.