Thomas P.M. Barnett :: Weblog

■"Yukos Auction Deepens Doubts Of Investors," by Erin E. Arvedlund and Jad Mouawad, New York Times, 21 December 2004, p. A1.

■"Bush Says He Wants to Keep Ties With Putin: Relationship Called 'Good' Despite Policy Concerns," by Peter Baker, Washington Post, 21 December 2004, p. A20.

I have long said, that so long as Putin only seeks to reinstitute vertical control over the political system and does not seem the same in the economic system, then I think he's still moving Russia in the right direction over time.

So what to make of the entire treatment of Yukos, stretching from the Khodorkovsky trial to the suspicious auction of the oil production unit to a firm that's obviously in the back pocket of the government?

Astute observer Ian Bremmer of the Eurasia Group overstates the case a bit when he says, "It should be clear to even the most Pollyannaish analyst that this is not a one-off example of political deviance. There's no question that Russia has moved closer to the Saudi model than to the American model."

Okay, there's no question about where to locate Russia on the issue of oil, but how much sense does it make to judge all of Russia on that slim margin? Frankly, do any of you get any news stories about Russia today that aren't about either Chechnya or Yukos? I was stunned to come across that piece I blogged a while back about Russian outsourcing in IT and services. Why? That kind of non-oil, non-terror stuff just doesn't appear in the mainline media on Russia, and yet Russia is a huge country whose economy is far from dominated by oil, like a Saudi Arabia.

Actually, Russia's far more important in gas, but even when you add oil and gas you don't capture more than a minority fraction of Russia's GDP, whereas in a Saudi Arabia, you're basically talking about the vast bulk of the economy.

Still, it makes sense to interpret Russia's behavior on this score in terms of an oil-producing country, something the U.S. left behind as a significant aspect of our economy a long, long time ago.

To me, here's the reasonable take:

"Russia is acting like any oil producer with a strong dependency to oil revenue," said Robert Mabro, chairman of the Oxford Institute for Energy Studies. "You've got to compare Russia to other oil producers like Iran or Saudi Arabia, not democracies like Denmark or Holland. After 80 years of communism, you don't turn into a liberal democracy overnight. That's a romantic notion that has no historic foundation."

Is it "overnight" still in 2004? Yeah, because we're still talking about leadership that was born and bred in the old system. So expect them to go with what they know when the going gets tough.

As for the U.S., we need to be patient and think strategically, so Bush is right to hold his tongue in terms of criticism. Think of a strategic security future worth creating 20 years from now where Russia is not a political and economic ally of the United States. So keep your eye on that prize and don't obsess over whether or not we're seeing a multi-party democracy in Russia any time soon.

Russia's not just some "body" state like Saudi Arabia, that's endowed with natural resources but not a smart population. Russia's got plenty of "head" to go with that "body." What it doesn't have is a lot of cash producing exports right now, so as long as Russia uses its exporting of oil and gas to progressively connect the rest of the economy and populace to the global economy, that's a move in the right direction.

Does Russia have to be very proactive in the latter activity? No, that is largely a private-sector-driven process. But where Putin does err is in creating a sense of chill and uncertainty about business practices in Russia and what the ultimate role of the state will end up being.

So it's crucial for him to make public his case for a heavy state role in "commanding heights" sectors like oil and gas, while disavowing such an approach in more "head"-heavy sectors. Go back and look at early Canadian and Australian and South African economic history—all countries with vast natural resource endowments. You will see plenty of state intervention and domination of those industries at the outset. The question is what those economies became over time, not where they started.

So we need to pick our fights on economic and politics and security with Russia very carefully.