{"id":12402,"date":"2020-05-27T17:04:57","date_gmt":"2020-05-27T17:04:57","guid":{"rendered":"https:\/\/blogs.transparent.com\/russian\/?p=12402"},"modified":"2020-06-03T22:28:07","modified_gmt":"2020-06-03T22:28:07","slug":"20-years-of-the-attempting-to-diversify-russian-economy-part-i","status":"publish","type":"post","link":"https:\/\/blogs.transparent.com\/russian\/20-years-of-the-attempting-to-diversify-russian-economy-part-i\/","title":{"rendered":"20 Years of Attempting\u00a0to\u00a0Diversify the Russian Economy – Part I"},"content":{"rendered":"

– We <\/span>wanted to wean off oil dependency…<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 – <\/span>We\u00a0<\/span>wanted to do that, and we are grad<\/span>ually\u00a0<\/span>weaning<\/span>\u00a0off it<\/span>, by the way. We are really moving away from it, because the share of non-oil and non-gas revenues is growing. But this\u00a0<\/span>requires time, and it cannot be done at the drop of a hat.\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0<\/span> Putin’s Interview to TASS <\/span>March\u00a0<\/span>4<\/span>, 2020<\/span>\u00a0<\/span><\/a><\/p>\n

In the previous blog<\/a>, I mentioned the “oil needle” problem in Russia. I would like to elaborate on this crucial matter for the whole country lifestyle.<\/span><\/p>\n

\"Oil

Image by Paul Lowry Flickr<\/a><\/p><\/div>\n

The export of the natural resources (\u043f\u0440\u0438\u0440\u043e\u0301\u0434\u043d\u044b\u0445 \u0440\u0435\u0441\u0443\u0301\u0440\u0441\u043e\u0432)<\/em> is a significant part of the\u00a0Russian economy<\/a>. President Vladimir Putin repeatedly spoke of the need to diversify the economy (<\/em><\/span>\u0434\u0438\u0432\u0435\u0440\u0441\u0438\u0444\u0438\u0446\u0438\u0301\u0440\u043e\u0432\u0430\u0442\u044c \u044d\u043a\u043e\u043d\u043e\u0301<\/span>\u043c\u0438\u043a\u0443<\/em>)<\/em> away from its dependence (\u0437\u0430\u0432\u0438\u0301\u0441\u0438\u043c\u043e\u0441\u0442\u044c)<\/em> on oil and gas: in <\/span>2001, 2004, 2006, 2007, 2008, 2012, 2016, 2018<\/span><\/a> and 2020. However, it looks like the diversification process does not go smoothly. <\/span>\u00a0<\/span><\/p>\n

In 2014, the share of oil and gas revenues (\u0434\u043e\u0301\u043b\u044f \u043d\u0435\u0444\u0442\u0435\u0433\u0430\u0301\u0437\u043e\u0432\u044b\u0445 \u0434\u043e\u0445\u043e\u0301\u0434\u043e\u0432)<\/em> in <\/span>The Federal budget of Russia<\/a> (\u0424\u0435\u0434\u0435\u0440\u0430\u0301<\/span>\u043b\u044c\u043d\u043e\u043c \u0431\u044e\u0434\u0436\u0435\u0301\u0442\u0435 \u0420\u043e\u0441\u0441\u0438\u0301<\/span>\u0438<\/em>)<\/em> exceeded the share of non-oil and gas revenues, accounting for an incredible 51%. At the beginning of 2020, it was around 40%. The crises of those years have clearly demonstrated the danger of such a revenue sharing (<\/em><\/span>\u0440\u0430\u0441\u043f\u0440\u0435\u0434\u0435\u043b\u0435\u0301\u043d\u0438\u0435 \u0434\u043e\u0445\u043e\u0301<\/span>\u0434\u043e\u0432<\/em>)<\/em> for the economy.\u00a0<\/span>\u00a0<\/span><\/p>\n

Such an excessive relying on <\/span>crude hydrocarbons <\/em>exports (\u044d\u0301\u043a\u0441\u043f\u043e\u0440\u0442 \u0443\u0433\u043b\u0435\u0432\u043e\u0434\u043e\u0440\u043e\u0301\u0434\u043d\u043e\u0433\u043e \u0441\u044b\u0440\u044c\u044f\u0301)<\/em>, combined with a decrease in demand on oil and gas in the global market, led to a budget shortage (\u0434\u0435\u0444\u0438\u0446\u0438\u0301\u0442 \u0431\u044e\u0434\u0436\u0435\u0301\u0442\u0430)<\/em>. Environmental reasons are also an important factor. The exhaustibility of natural resources and pollution of places of extraction (\u043c\u0435\u0301\u0441\u0442 \u0434\u043e\u0431\u044b\u0301\u0447\u0438)<\/em>, refining of petroleum products (\u043f\u0435\u0440\u0435\u0440\u0430\u0431\u043e\u0301\u0442\u043a\u0438 \u043d\u0435\u0444\u0442\u0435\u043f\u0440\u043e\u0434\u0443\u0301\u043a\u0442\u043e\u0432)<\/em>, and their waste, continue to be<\/span>\u00a0one of the world’s big problems today.\u00a0<\/span>\u00a0<\/span><\/p>\n

Thus, a severe dependence on hydrocarbon production, which Russia inherited from the Soviet Union, can dramatically undermine the economy in sharp changes in oil and natural gas prices. That was one of <\/span>the factors of the collapse of the USSR<\/span><\/a>.\u00a0<\/span>\u00a0<\/span><\/p>\n

For better understanding how Russia’s dependence on oil and gas resources began, let’s look at<\/span>\u00a0the<\/span>\u00a0<\/span>history of the petroleum industry (\u043d\u0435\u0444\u0442\u044f\u043d\u043e\u0301\u0439 \u043f\u0440\u043e\u043c\u044b\u0301\u0448\u043b\u0435\u043d\u043d\u043e\u0441\u0442\u0438<\/a><\/em>).<\/span>\u00a0<\/span><\/p>\n

Acquaintance with\u00a0<\/span>Petroleum<\/span>\u00a0<\/span><\/h2>\n

The first mention of\u00a0<\/span>crude<\/em> oil (\u0441\u044b\u0440\u043e\u0301\u0439 \u043d\u0435\u0301\u0444\u0442\u0438)<\/em> sources (\u0438\u0441\u0442\u043e\u0301\u0447\u043d\u0438\u043a\u0438)<\/em> on Russia’s territory is in the treatise of the Byzantine emperor Konstantin <\/span>Bagryanorodny<\/span> in the 10<\/span>th<\/span>\u00a0century.<\/span>\u00a0<\/span>In ancient Russia, oil was used in medicine,\u00a0<\/span>painting<\/span>,\u00a0<\/span>and\u00a0<\/span>incendiary products<\/span>.<\/span> It was so abundant that oil actually seeped up from cracks in the ground. <\/span>People also\u00a0collected oil from the surface of the water and used it as a lubricant.\u00a0<\/span>\u00a0<\/span><\/p>\n

In 1684, oil was discovered in the Irkutsk Ostrog area <\/span>1<\/a><\/sup>An area of Eastern Siberia<\/a><\/span><\/span>\u00a0by<\/span> Leonty Kislyansky 2<\/a><\/sup>An administrator, similar to a head of a fortress<\/span>.<\/span>\u00a0He\u00a0<\/span>wen<\/span>t to Irkutsk\u00a0<\/span>for prospecting for deposits of exploitable minerals (\u043c\u0435\u0441\u0442\u043e\u0440\u043e\u0436\u0434\u0435\u0301\u043d\u0438\u044f \u043f\u043e\u043b\u0435\u0301\u0437\u043d\u044b\u0445 \u0438\u0441\u043a\u043e\u043f\u0430\u0301\u0435\u043c\u044b\u0445)<\/em>. <\/span>Locals told him that<\/span>\u00a0the\u00a0<\/span>unknown\u00a0<\/span>steam<\/span> was coming <\/span>out of the<\/span>\u00a0mountain, and<\/span> there was no snow in winter and no grass in summer<\/span>\u00a0in that place.<\/span>\u00a0<\/span>Having cleared the exit point of the gases, he finally\u00a0<\/span>became convinced that he had discovered “real oil” there.<\/span>\u00a0<\/span><\/p>\n

A few more new oil discoveries were reported\u00a0<\/span>un<\/span>til 1745<\/span>, when\u00a0<\/span>the first serious\u00a0<\/span>oil production\u00a0<\/span>began<\/span>.\u00a0<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span>The beginning of the oil industry<\/span>\u00a0<\/span><\/h2>\n

At the beginning of the 19th century, the Caucasus 5<\/a><\/sup>An area between the Black Sea<\/a>\u00a0and the\u00a0Caspian Sea<\/a><\/span> <\/span>became Russia’s central oil production<\/span>\u00a0<\/span>region<\/span>.<\/span>\u00a0<\/span><\/p>\n

\"Kerosene

Image by Vladimir Fedotov Flickr<\/a><\/p><\/div>\n

1853 is famous for inventing the first modern kerosene (\u043a\u0435\u0440\u043e\u0441\u0438\u0301\u043d)<\/em> lamp<\/span>.\u00a0<\/span>In St. Petersburg and\u00a0<\/span>Moscow,<\/span>\u00a0the new lighting system became widespread in 1863<\/span>, which highly increased the demand for oil and petroleum products<\/span>.<\/span>\u00a0<\/span><\/p>\n

Obviously, in vast Russia, oil was supposed to be in different parts of the country. But in practice, the oil industry was monopolized geographically. Almost all oil was extracted (\u0431\u044b\u043b\u0430\u0301 \u0434\u043e\u0431\u044b\u0301\u0442\u0430<\/em>) in Baku 6<\/a><\/sup>Currently, the capital of Azerbaijan<\/a><\/span>, away from all major industrial centers (\u043f\u0440\u043e\u043c\u044b\u0301\u0448\u043b\u0435\u043d\u043d\u044b\u0445 \u0446\u0435\u0301\u043d\u0442\u0440\u043e\u0432)<\/em> and significant trade routes (\u0442\u043e\u0440\u0433\u043e\u0301\u0432\u044b\u0445 \u043f\u0443\u0442\u0435\u0301\u0439)<\/em>. In the Kuban7<\/a><\/sup>A region of Southern Russia<\/span>, a primitive way by drawing oil in buckets from wells was used for o<\/span>il extraction. This method was not suitable.<\/span><\/p>\n

The first production well (\u044d\u043a\u0441\u043f\u043b\u0443\u0430\u0442\u0430\u0446\u0438\u043e\u0301\u043d\u043d\u0430\u044f \u0441\u043a\u0432\u0430\u0301\u0436\u0438\u043d\u0430)<\/em> was drilled (\u0431\u044b\u043b\u0430\u0301 \u043f\u0440\u043e\u0431\u0443\u0440\u0435\u043d\u0430)<\/em> in the Kuban<\/span>\u00a0in 1864.\u00a0<\/span>In 1865, Colonel Ardalion Novosiltsev 8<\/a><\/sup>Colonel from the Novosiltsev clan<\/a>, a participant in the Caucasian and Crimean war, the founder of mechanized oil drilling in Russia, the first oil producer in the Kuban<\/span> contacted the Military Directorate with a land grant proposal, asking for a series of Kuban Cossack Host lands for eight years<\/span>\u00a0for oil production by drilling<\/span>.<\/span>\u00a0He came there with a mechanic, a locksmith, and a mining engineer.\u00a0<\/span>Finally, in 1866, at a depth of 123.5 feet, they struck Russia’s first oil gusher in Well No. 1.<\/span> That was the beginning of the industrialization of oil production in Russia, and the country has never looked back.<\/span><\/p>\n

I will continue telling about the history of the oil industry in Russia, and will share its forecasts for the future. You also will know if Russia is ready for its economic diversification.<\/p>\n

In 1745, Fedor<\/span>\u00a0<\/span>Pryadunov<\/span>\u00a0<\/span>3<\/a><\/sup>A\u00a0Russian\u00a0<\/span>entrepreneur<\/span><\/span>, who\u00a0<\/span>was<\/span>\u00a0<\/span>a<\/span> pioneer of the domestic oil business,<\/span>\u00a0<\/span>began oil production (\u0434\u043e\u0431\u044b\u0301\u0447\u0443 \u043d\u0435\u0301\u0444\u0442\u0438) <\/em><\/span>in the area of the Ukhta\u00a0<\/span>river<\/span>\u00a0<\/span>in the\u00a0Komi\u00a0<\/span>Republic 4<\/a><\/sup>Northwestern Federal District<\/a>, a part of the Northern Economic Region<\/a><\/span><\/span>.<\/span>\u00a0<\/span>He designed an oil refinery (\u043d\u0435\u0444\u0442\u0435\u043f\u0435\u0440\u0435\u0440\u0430\u0431\u0430\u0301\u0442\u044b\u0432\u0430\u044e\u0449\u0438\u0439 \u0437\u0430\u0432\u043e\u0301\u0434) <\/em>and made a warehouse for storing raw materials (\u0441\u044b\u0440\u044c\u0451)<\/em>.<\/span>\u00a0<\/span>T<\/span>hat\u00a0was the innovative\u00a0<\/span>process of mining (\u0434\u043e\u0431\u044b\u0301\u0447\u0438 \u043f\u043e\u043b\u0435\u0301\u0437\u043d\u044b\u0445 \u0438\u0441\u043a\u043e\u043f\u0430\u0301\u0435\u043c\u044b\u0445)<\/em><\/span>.<\/span>\u00a0<\/span><\/p>\n