CNBC Business | FROM TANKS TO BANKS (AND BACK AGAIN)

FROM TANKS TO BANKS (AND BACK AGAIN)

Jirí Komínek examines the new Russia, where energy dominance has replaced military might as the primary lever of power

It’s no secret that since the turn of the century, Russia under the rule of President Vladimir Putin has regained its self-confidence as a world power and started to systematically advance its position in the global pecking order. This time, however, the forces leveraged to achieve this position have changed.

Once, brute force in the form of tanks, strategic bombers and the threat of nuclear destruction was relied upon to keep potential opponents in the West on their toes. Today Russia’s weapon of choice is altogether different, but equally threatening – natural gas and oil.

The formula is actually quite simple. If you control the sources of energy to which European economies are unquestionably addicted and without which they cannot function, as well as the means of extracting these substances and transporting them to their intended consumers, not only do you make a pile of money, you also get something far less tangible – real power.

“Russia has used its energy power in an attempt to influence the foreign and security policies of its neighbours since 1990,” wrote Keith C. Smith, senior associate at the Washington-based Centre for Strategic and International Studies, in December, 2004. At that time the Soviet government had cut off gas supplies to the Baltic republics as a bullying tactic intended to intimidate them into not declaring independence.

The new battle plan was drawn up in 1997, when Putin, then a civil servant working for the St Petersburg magistrates office, was completing his doctoral thesis. In it, the former KGB agent wrote that the state must regain control of Russia’s natural gas and oil reserves, including their location, extraction and transport, in order to regain its position as a leading global power.

OMON riot police surround supporters of Russia's political opposition at a Moscow demonstration in 2006

“Given Putin’s background, having been raised under and serving a system where the state controlled the means of production, this did not come as any great surprise; quite the contrary, in fact,” says Ondrej Soukup, a Russian expert from Prague-based think tank the Association for International Affairs. “Putin realised, however, that Russia – then economically depressed – could not afford the expense of locating, extracting and transporting the product to market without the aid of private capital. So in his thesis he insisted that private players be permitted to take part under the condition that they, especially foreign investors, never be given control of the shop.”

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