Reconsidering Parshev

In most Russian bookstores, there is a bookshelf or two dedicated to so-called “patriotic literature” – reappraisals of Stalin against “liberal revisionism”, overviews of Russia’s secret super-weapons, the exploits of its special forces and Russian theo-philosophy. Much of it is (apparent) nonsense, but the economic crisis has forced me to reconsider one particular “patriotic” thesis – Andrei Parshev’s Why Russia is not America.

His big idea, an elaboration and tying together of earlier work, is that Russia’s economy is structurally uncompetitive on the world stage, and that integrating with the global economy will lead to catastrophe. This is because of his counter-intuitive observation that Russia is overpopulated. Though its population density is low on paper, the cold climate, huge landmass and poor riverine connections means that the carrying capacity of north Eurasia is nowhere near as high as that of the world’s other centers of economic and political power – the US, China, and Europe. Because manufacturing is inherently loss-making on the Eurasian plains, it is much more economically “efficient” to just ship out Russia’s mineral resources to fuel manufacturing in warmer, coastal regions such as the Pearl River Delta or the Great Lakes. No more than 20mn Russians are needed to service the pipelines and grow fat from the proceeds; the other 120mn are free to eke out a subsistence living on Russia’s marginal lands, or die out (as indeed many did during the era of neo-liberal reforms). He recommended a return to sovereignty, autarky and sobornost as the solution to these woes.

I agreed with Parshev’s analysis upon my first reading of his book in 2002, a time when I still thought Putin was no more than a better-dressed, sober gangster in Yeltsin’s mold and the country showed little signs of real recovery. Yet as evidence mounted that Russia really was prospering by the mid-2000’s and I became influenced by Krugman’s criticisms of competitiveness, I increasingly came to reject his ideas (e.g. see this comment). However, since then increasing awareness of the vital role played by protectionism in “catch-up” industrial development, the reality of peak oil and above all the economic crisis forced me into reconsidering Parshev.

Russia’s Geographic Curse

According to the geographic-determinism school of economic development, Russia is afflicted by a panoply of woes experienced by no other country or region to anywhere near the same extent. This is held to explain its special path of development, in which attempts to “catch up” with the West only end up reinforcing a Sisyphean loop of unrealized ambitions and tragic legacies.

1) Russia is too cold.

But aren’t Canada and Finland prosperous liberal democracies, despite their harsh climate? Yes, they are. But most of Canada’s 30mn-strong population is concentrated around the Great Lakes, Vancouver and Newfoundland. The former has great riverine connections with the dynamic US heartlands, while the latter two have maritime climes with excellent deep sea ports. There are a few millions living in the agriculturally productive Canadian Prairies (equivalent to Russia’s Black Earth regions). However, Canada has nowhere near so many people living so far north and so far inland as Russia.

Without central planning and subsidized energy flows, it is highly unlikely that settlements in deepest Siberia or the High Arctic could have developed into substantial population centers. Manitoba-Saskatchewan-Alberta (5.9mn) together have fewer people than the demographically weakest Russian Far East (6.7mn), let alone Siberia (20.1mn), the Urals (12.4mn) and the Volga (31.2mn) which all have similar or worse climatic conditions. Just compare the populations of the following rough climatic equivalents: Moscow (14.8mn) and Calgary (1.1mn); Irkutsk (594k) and Yellowknife (19k); Norilsk (135k) and Churchill (923).

As for Finland, it is climatically and geographically equivalent to St.-Petersburg and the Leningrad Oblast, which are atypical in having relatively mild climes and sea access during the warm seasons. Even so, Finland has an unremarkable GDP per capita compared to other developed nations, despite it having some of the best human capital in the world.

The cold makes growing seasons short and late spring droughts are a recurrent problem. This traditionally made Russian agriculture outside the southern Black Earth regions (where the cold is mitigated by exception soil fertility and access to the seas) unproductive and barely sufficient for population subsistence.

This in turn gave rise to peasant cultural traditions deeply averse to the development of capitalist enterprise, with its emphasis on individual initiative and steady capital accumulation. The classic Kluchevsky quote from the 19th century:

There is one thing of which the Great Russian is sure − that a sunny summer day is valuable, that nature would allow little time convenient for agricultural work and that a short Great Russian summer can be shortened even more by a sudden untimely turn of bad weather. This would force the Great Russian peasant to hurry up and toil in order to achieve as much as possible over a short while and take the crop in good time… In this way the Great Russian would learn to take an extraordinary but short effort, would learn to do rush, hasty work and then take a rest during forced idleness in autumn and winter. No other nation in Europe is capable of such short extraordinary effort; but, on the other hand, such lack of habit to regular, moderate, constant work is unlikely to be found anywhere in Europe.

Though peasants view capitalists with suspicion throughout the world (money relations are a threat to the village social relations that serve to guarantee subsistence to its members), the precariousness of Russian agriculture reinforced the antipathy and encouraged the formation of a strong state capable of accumulating and protecting surpluses in the good times to insure the people from dearth in the bad times. It is probably no accident that the Russian state arose out of Muscovy, one of the remotest and least agriculturally productive regions, which however compensated with overwhelming military and political power.

Of course, the influence of climatic factors is much weaker on industry and services, than on agriculture. They have higher added value and the severe cold is mitigated by Russia’s energy riches, made exploitable by the Industrial Revolution. That said, the infrastructure costs remain significantly higher than in more climatically benign nations.

As you can see from the map above, east of Poland and north of Romania, Crimea and the Caucasus, Eurasia is afflicted by deep permafrost. This necessitates laying thick, heated concrete foundations and makes constructing housing, factories and skyscrapers far more costly than in developed nations, despite Russia’s cheaper labor force.

2) Russia is too big and remote.

Russia is in the paradoxical position of being at once overpopulated and underpopulated. Overpopulated in that it is too cold and harsh to sustain a big population; underpopulated in that the population density is low, which makes transport costs per capita prohibitively high. The challenge posed by its huge size and lack of sea ports was noted as far back as the 18th century by Adam Smith in his Wealth of Nations.

…all that part of Asia which lies any considerable way north of the Euxine and Caspian seas, the ancient Scythia, the modern Tartary and Siberia, seem in all ages of the world to have been in the same barbarous and uncivilised state in which we find them at present. The Sea of Tartary is the frozen ocean which admits of no navigation, and though some of the greatest rivers in the world run through that country, they are at too great a distance from one another to carry commerce and communication through the greater part of it.

This is also a constant theme of Stratfor‘s analysis (e.g. see The Recession in Russia).

Throughout history, Russia has lacked navigable river transportation and access to ocean trading routes. Furthermore, Russia’s population is scattered across its vast territory, its natural resources are mostly found in unpopulated areas and a number of regional challengers constantly threaten its territorial integrity. Russia’s core is essentially the northeastern portion of European Russia…

With vast territory, constant expansion to the buffers and a lack of internal transportation, Russia requires a substantial amount of resources to maintain and defend its borders. It requires top-down management of the economy to focus resources on overcoming geographical impediments to development and security. As such, Russia is not a capital-rich country; it is starved for capital by its infrastructural needs, security costs, chronic low economic productivity, harsh climate and geography. Unlike the United States or the United Kingdom, where industrial and post-industrial economic development can spring forth with little or no direction thanks to favorable geography (intricate river transportation systems in the United States and access to oceanic trade routes for both) and the relative security of oceanic barriers, Russia has had to rely on firm state-driven economic development.

Railways ameliorated Russia’s situation by vastly decreasing transport costs across its barren continental swathes, thus reducing the relative advantages enjoyed by the Rimland nations through virtue of their access to sea traffic. (This development was noted more than a hundred years ago by the geopolitical theorist Mackinder, who was concerned by the strategic threat Russian railways posed to British-ruled India). Meanwhile, the telegraph, telephones, radio, TV and eventually the Internet nullified the effects of distance on information exchange.

Nonetheless, Russia continues to incur great costs on account of its cold, continental nature. Road and railway maintenance are relatively hard and expensive in Russia, which has more limited spare resources in the first place. It also largely misses out on the great productivity gains accruing from the cargo freighter revolution of the late industrial age. Outside the Moscow road rings and the Moscow – St.-Petersburg corridor, highways remain little more than directions.

3) Russia has too many enemies.

Given its origins as a settled, economically-weak civilization surrounded by foreboding plains dominated by Asiatic horsemen to the east and Germanic, Scandinavian and Polish rivals to the west, Russia’s rulers have always felt insecure. This drove them to expand the Empire since the 15th century to occupy natural buffers, as far down the North European Plain as possible, to the Carpathian Mountains to the southwest, the Caucasus and Hindu Kush to the south and the Altai Mountains, Tian Shan and Stanovoy Range in the Far East. As Catherine the Great pithily put it, “I have no way to defend my borders except to extend them”. Below is a map showing how Russia’s geo-strategists view the world:

Poor internal communications and technical deficiencies forced Moscow to main large standing armies on every potential front, incurring a constant drain on scarce resources and the productive labor pool. More resources were required for administering non-Russian lands, maintaining a formidable internal policing apparatus, and funding the development of strategic sectors, above all those tied to military applications. Security vacuums in Russia’s periphery drew in Russian troops and bureaucrats. All this makes imperial overstretch, economic inefficiency and primitive consumer markets constant features (not bugs) of any Eurasian empire.

4) Russia retains a burdensome Soviet legacy.

Though technological developments partly mitigated the negative roles of climate and geography in Russian economic development, the Soviet physical legacy of single-industry towns, “gigantism”, remote settlements, and “structural militarization” acted in the opposite direction.

Towns were built in remote areas, including the High Arctic and the Far East, regardless of costs and explicitly designed to serve a planned economy. Heating in apartment blocks was centralized, meaning that even if half the inhabitants left the rest were still entitled to utilities services. All this constituted a massive diversion of energy flows from more “efficient” purposes. Many of these towns relied on just a few large industrial employers to survive; closing the enterprise down, even if it was high unprofitable, would have resulted in humanitarian catastrophe. Incidentally, this is precisely the reason why the neoliberal reforms of the 1990’s weren’t (and probably couldn’t be) really carried through.

Stalin built up the foundations for a gargantuan military-industrial complex (MIC) centered in the remote, uninviting Urals. After the 1960’s, the MIC metastasized to such an extent as to constitute around 30% of Soviet GDP by the mid-1980’s. Though activity collapsed in the 1990’s, Russia retains a structurally militarized economy. Though currently dormant and atrophied, it can be easily reconstituted. In the mean-time the MIC continues to lock up a great deal of Russia’s human and capital resources, along with the armed forced and its vast array of security agencies.

Why America is not Russia

The US is structurally different in almost all respects. Though it has a huge continental interior, its fertile areas are interconnected by an extensive riverine network that remains ice-free throughout the winter months. It possesses excellent sea ports on both coasts. The Great Lakes region is perhaps the best place anywhere in the world for industrial development.

America’s strategic isolation and massive internal potential allow it to maintain a world class navy and expeditionary forces with ease. The US uses them calculatedly and sparingly to check the emergence of any Eurasian hegemon, the only construct that has any chance of challenging its global preeminence. And it is not afflicted by economic distortions from its deep past because America was, at least internally, a consistently free market nation since the earliest days of its founding. Its small population and abundant resources produced large per capita surpluses, sparing it from the Malthusian crises that periodically stunted older civilizations, and instead spurring on the development of free-wheeling capitalism.

From Stratfor‘s The Geography of Recession:

The most important aspect of the United States is not simply its sheer size, but the size of its usable land. Russia and China may both be similar-sized in absolute terms, but the vast majority of Russian and Chinese land is useless for agriculture, habitation or development. In contrast, courtesy of the Midwest, the United States boasts the world’s largest contiguous mass of arable land — and that mass does not include the hardly inconsequential chunks of usable territory on both the West and East coasts.

Second is the American maritime transport system. The Mississippi River, linked as it is to the Red, Missouri, Ohio and Tennessee rivers, comprises the largest interconnected network of navigable rivers in the world. In the San Francisco Bay, Chesapeake Bay and Long Island Sound/New York Bay, the United States has three of the world’s largest and best natural harbors. The series of barrier islands a few miles off the shores of Texas and the East Coast form a water-based highway — an Intracoastal Waterway — that shields American coastal shipping from all but the worst that the elements can throw at ships and ports.
The real beauty is that the two overlap with near perfect symmetry. The Intracoastal Waterway and most of the bays link up with agricultural regions and their own local river systems (such as the series of rivers that descend from the Appalachians to the East Coast), while the Greater Mississippi river network is the circulatory system of the Midwest. Even without the addition of canals, it is possible for ships to reach nearly any part of the Midwest from nearly any part of the Gulf or East coasts. The result is not just a massive ability to grow a massive amount of crops — and not just the ability to easily and cheaply move the crops to local, regional and global markets — but also the ability to use that same transport network for any other economic purpose without having to worry about food supplies.

The implications of such a confluence are deep and sustained. Where most countries need to scrape together capital to build roads and rail to establish the very foundation of an economy — transport capability — geography granted the United States a near-perfect system at no cost. That frees up U.S. capital for other pursuits and almost condemns the United States to be capital-rich. Any additional infrastructure the United States constructs is icing on the cake. (The cake itself is free — and, incidentally, the United States had so much free capital that it was able to go on to build one of the best road-and-rail networks anyway, resulting in even greater economic advantages over competitors.)

Third, geography has also ensured that the United States has very little local competition. To the north, Canada is both much colder and much more mountainous than the United States. Canada’s only navigable maritime network — the Great Lakes-St. Lawrence Seaway —is shared with the United States, and most of its usable land is hard by the American border. Often this makes it more economically advantageous for Canadian provinces to integrate with their neighbor to the south than with their co-nationals to the east and west.

Similarly, Mexico has only small chunks of land, separated by deserts and mountains, that are useful for much more than subsistence agriculture; most of Mexican territory is either too dry, too tropical or too mountainous. And Mexico completely lacks any meaningful river system for maritime transport…

With geography empowering the United States and hindering Canada and Mexico, the United States does not need to maintain a large standing military force to counter either. The Canadian border is almost completely unguarded, and the Mexican border is no more than a fence in most locations — a far cry from the sort of military standoffs that have marked more adversarial borders in human history. Not only are Canada and Mexico not major threats, but the U.S. transport network allows the United States the luxury of being able to quickly move a smaller force to deal with occasional problems rather than requiring it to station large static forces on its borders.

Like the transport network, this also helps the U.S. focus its resources on other things.

Taken together, the integrated transport network, large tracts of usable land and lack of a need for a standing military have one critical implication: The U.S. government tends to take a hands-off approach to economic management, because geography has not cursed the United States with any endemic problems. This may mean that the United States — and especially its government — comes across as disorganized, but it shifts massive amounts of labor and capital to the private sector, which for the most part allows resources to flow to wherever they will achieve the most efficient and productive results.

Russia’s Return to the Future

As I pointed out earlier here and here, Russia is returning to the future. Its demography is stabilizing after the precipitous collapse of the 1990’s, and social morale and faith in the nation is slowly returning, to the dismay of geopolitical competitors, “Russophobes” and “social progressives” alike. Russia is implementing an industrial policy aimed at manufacturing growth and technology diffusion. The state brought the regions back under its thumb and is again becoming the linchpin of the Russian economy. The party’s over for Russia’s oligarchs:

Because of the financial crisis and government consolidation, the once-powerful oligarchs no longer have a say in their future and are merely along for the ride. Indeed, they no longer constitute a powerful and distinct business “class.” Some oligarchs will survive the shakeout, but not with their independence. To some degree, they all will become part of the Kremlin machine so carefully engineered by Putin. As copper oligarch Iskander Makhmudov said in a rare interview: “The oligarchs now have mixed fortunes, but we will all end up being soldiers of Putin one day.”

Instead of liberalizing, the economic crisis has simply reinforced already latent trends in Russia’s economic development. Russia’s ongoing globalization since the 1970’s is slowly beginning to reverse itself; Russia’s decision to apply to the WTO as part of a customs union with Belarus and Kazakhstan is an early indicator of an accelerating trend. Much of what I predicted in The Importance of Self-Sufficiency half a year ago is already coming to pass:

A wave of consolidation will occur in the Russian banking industry, Russia Inc. will close the oil windfall-foreign intermediary-cheap credit loop that was its prior financing mechanism and the country will emerge with a stronger, self-sufficient financial system. The oligarchs, Moscow and the middle classes bear the brunt of the crisis, while the provinces, agriculture and domestic manufacturing benefit, thereby reinforcing already latent tendencies in national development.

Though the drop in Russia’s output was far greater than I expected, it was far worse in Ukraine and the Baltics. Ukraine’s project of Westernization has failed utterly. According to my quick back of the envelope calculations, its GDP is currently (taking into account the recent collapse) around 30-40% lower than it was in the late USSR! (Russia’s is around 0-10% lower, but it is not faced with a fiscal or political crisis). Thus, though there is a possibility of a humanitarian crisis and a demographic shock in Russia, it is much lower than in Ukraine – where in any case a post-Soviet fertility recovery is much less in evidence in the first place. Damningly, opinion polls indicate that Putin and Medvedev are by far the most popular politicians in Ukraine.

Decline and disillusionment in Ukraine, and the return of isolationist nationalism to Russia. What next? History is a guide. A fundamental feature of autarkies is that to be truly self-sufficient they need to expand their domain, much as the Bolsheviks created the Union of Soviet Socialist Republics, which in turn expanded it to COMECON. It has to expand territorially in order to have access to all the vital building blocks of an industrial economy and to be able to hold its own against other economic blocs, which are more tightly interwoven into the world market. As such, it is very likely that within the next decade Ukraine, Belarus and Kazakhstan will again become integrated with Russia, on a spectrum of possibilities ranging from an EU-like structure to a unitary state-empire.

Reintegration will create a state with 210mn souls and will significantly increase the industrial (including military-industrial) power at Moscow’s disposal by at least 50%. One has to keep in mind that Eurasia’s industrial base was meant to be unified when it was constructed during the Soviet era, and as such the gains accruing from reintegration will be more than just the sum of its parts. One of Russia’s geopolitical priorities is to thwart an independent energy corridor for the proposed Nabucco oil pipeline and to link up with its ally Armenia, so it will no doubt continue pressuring Georgia to return into its orbit. Saakashvili’s days in power are almost certainly numbered. Whether Russia will choose to expand in Central Asia is more questionable. On the one hand, they have respectable energy reserves (especially gas), constitute demographic reservoirs amidst graying Slavdom and are geopolitically important. There are few problems with radical Islam and on the whole they appreciate Russian culture. On the other hand, they will present a development burden and China will likely oppose an overt Russian reassertion in Central Asia.

I do not think these trends are possible, or even desirable, to arrest, even should the Kremlin leadership want to (they will be pulled along by the Russian people). The reasons why they are inevitable, I leave to a later post.

Why they are nothing to lament over can be answered now – because of other key global trends. Russia’s oil production very likely peaked in 2008, along with global production. Conserving what remains for its own use should be a priority; exports should only be allowed on the most favorable terms, in exchange for Western technologies, not US Treasuries, Chinese trinkets or oligarch mansions in London. One consequence is that there will be increasing competition for resources. The industrial core (the US, Europe and China) will probably strike up strategic alliances to control and influence resource-rich nations, either overtly (latter-day gunboat diplomacy) or covertly (influence operations, information wars, etc). In this world, much like in the 1930’s, the strong will beat the weak. As such, Russia’s geopolitical priorities would logically be – and this already seems to be happening – to a) maintain its military strength, including the nuclear deterrent, b) neutralize and co-opt Europe and c) extend influence over the energy-rich Arctic, Central Asia and the Middle East. To pursue these goals effectively, it needs economic sovereignty, morale, and the attributes of an empire (in Russia’s case, these are all inter-linked).

The era of childish enchantment with the West, pursued by Andropov’s successors, is coming to an end, at last dispelled by the deafening crash of globalization.

Anatoly Karlin is a transhumanist interested in psychometrics, life extension, UBI, crypto/network states, X risks, and ushering in the Biosingularity.


Inventor of Idiot’s Limbo, the Katechon Hypothesis, and Elite Human Capital.


Apart from writing booksreviewstravel writing, and sundry blogging, I Tweet at @powerfultakes and run a Substack newsletter.


  1. Regarding the above excerpted: “As Catherine the Great pithily put it, ‘I have no way to defend my borders except to extend them’.”


    This very much pertains to the position of the USSR as WW II ended. Some motivating anti-Soviet factors behind the Munich appeasement in 1938 and subsequent Nazi attack of the USSR in 1941 was understandably linked (by Soviet strategists, namely Stalin) to other past actions against the Russian Empire and Rus.

    The future projection brought up in this article brings up some recent hoopla about the at times testy post-Soviet state of relations between Russia and those former Soviet republics it’s on the closest of terms with. This relationship is still developing, with the “quirks” (for lack of a better term) being worked out. With this in mind, one can’t rule out the future predicament as suggested in this heady piece.

    AK responds

    Mike, can you please refrain from making small posts with minor corrections in the future.

  2. Excellent article Anatoly

    A few quick points:

    – I had been thinking along similar lines re inhabited Russia. It seems that most of Russia’s population is west of Kazan and is concentrated in an area about three times the size of France, large sections of which are inhospitable.
    – Nice photo (4th illustration), by the way, it reminds me of Scotland.
    – They laugh at Red Dawn, but I think it was actually a pretty good idea, that the USSR was more agriculturally vulnerable than many would think. According to Wikipedia, the story idea (that the USSR invades America due to a famine, for those who have not had the good fortune to see this masterpiece) was actually proposed by a real politician… but I don’t believe everything I read on Wikipedia 😉
    – Sadly I do not share your optimism re Georgia. Saakashvilli is still popular according to opinion polls. I have a well-educated friend who is an ethnic Georgian Russian. Whilst he is not unpatriotic to Russia, he just will not accept that Saakashvilli has been immensely stupid.

    As I see it (forgive me if this is an absurd metaphor) it is as if people play chess in teams. Saakashvilli would be in charge of a pawn and say ‘oh, I’ll strike in here, I’m sure they’ll redivert the queen from whatever strategy they’re up to on the other side of the board to help me’. Of course they didn’t and Georgia may well collapse as a state. But the people are still loyal to him.

    • The popularity of Saakashvili is mostly influenced by the recent and perhaps ongoing conflict with Russia. Nations tend to unite behind a leader if they are motivated by common threat. This is even more enforced by the fact that Misha has a firm grip on the media. If the relations with Russia calmed, I think we would see the same situation as we see now with Yushchenko of Ukraine.

  3. Very interesting article. I found the discussion of agriculture particularly interesting because I tend to be more optimistic about the prospects for Russian agricultural development. I believe that Russia’s agricultural sector suffers from underdevelopment alongside the harsh conditions.

    Harsh conditions are in Israel as well, although they are of opposite nature. The Israelis imported plant species from Australia and developed smart irrigation systems. The lack of water is a chronic menace there just as cold is in Russia. There are however plant species that can either be imported or perhaps genetically enhanced to produce higher yields during the short warm seasons or even animals that can be kept in the harsh winter conditions. Also investment into agricultural technology would also greatly improve the product.

    I might be exaggerating but Russia could become one of the breadbaskets of the world.

    • I certainly think agriculture in Russia can be expanded, especially in the southern regions, and it is already a major breadbasket. Exporting grain is profitable and will become more so in a future of higher food prices. The government appears to have realized this. Which is probably fortunate, because as with most things in Russia, nothing large-scale or comprehensive happens in agriculture without state support.

      That said, even now such exports are profitable only because of cheap energy inputs and the prospect of high global grain prices (the last time Russia was a major agricultural exporter was under Tsarism, when grain was harvested by almost-free serf labor and grain prices were high because of Europe’s growing urban centers, meaning that feudal masters and the state could reap handsome profits – to an extent, we have a similar situation today with oil-powered tractors and combine harvesters providing cheap energy, and urbanization in the developing world providing the demand). However, I doubt bulkier, lower-margin agricultural products like potatoes, meat or dairy from Russia can ever be competitive on global markets. Note that although grain production recovered from its post-Soviet nadir, production of milk and meat remains depressed.

      Re-Israel. They certainly face a challenging ecological and security environment, and these twin factors probably explain its unimpressive GDP per capita (relative to developed nations), despite the traditional Jewish capacity for capitalist enterprise. That said, it is not really equivalent to Russia because a) it does not have massive, energy-costly settlements in isolated areas, b) Israel is compact, prime coastal territory, not an unwieldy continental landmass and c) the Jews, specifically the Ashkenazim, come from one of the most enterprising cultures on Earth, whereas Russia’s physical geography conditioned its denizens to view individual profit-making as a sin.

      • Regarding the dairy products, I have discussed this the other day with one person and he said there is a lack of pasteurization facilities in Russia and many dairy produsts are thus imported. Maybe the competitivness on the global market is not the desired goal, not yet. Potatoe variants could be selected to provide better yields.

        Anyway thanks a lot for some insightful information.

  4. Steve J. Nelson says

    Having spoken with a Chevron engineer who worked in Moscow for several years and now works with a major private oil company based in Dallas now operating in Iraqi Kurdistan that sold its stake in Russia several years ago, I cannot agree with Karlin’s view that Russian oil production has peaked for all time — only that Russia’s easy oil output may have peaked. Tens to hundreds of billions in investment are going to be required over the next thirty years, most likely from India and China since EU and America will be too old and wary, to keep filling the pipelines and tankers with new production. Ditto for Africa, where Tom Barnett already sees Indians and Chinese taking up what used to be the “white man’s burden”.

    This engineer told me he laughs at Peak Oil enthusiasts because Russia’s Far East and Siberia have bigger fields than what have been found so far, and that the USSR and Russia only exploited the easiest to get to fields, aside from the Caspian and Kazahkstan. I also talked with a Canadian engineer who says Baffin Bay is another Persian Gulf, if only the ice melts. On the other hand, Karlin is right to emphasis Russian assertiveness over the Arctic since the real motherload is probably all within five hundred miles north or south of the Arctic Circle. Another reason to root for global warming even if more recent evidence suggests a fresh cooling trend after the warming since the 1970s.

    • Bigger fields are almost by definition easier to get, so positing that there exist bigger, yet-to-be-discovered fields in Siberia is a leap of faith. (Certainly not the case for the Far East; the geological structure makes the formation of large oil deposits there impossible).

      Hundreds of billions of dollars needed in investment? Says it all. In other words, the energy return on energy invested (EROEI) is going to be shrinking fast for Siberian oil, meaning that the utility derived from investing into Siberian oil production expansion is going to shrink relative to other economic sectors (though granted higher oil prices will cancel this out). But then again, higher oil prices hurt the general economy and shrink the stock of capital available for any investment.

      Even barring all that, even if the Chinese and Indians do provide these hundreds of billions of dollars, they’ll do that only if they could be sure that their property rights are enforced. Russia is not well-known for its respect for sanctity of contracts, so they’ll have to discount the risks of disappropriation. If anything in an energy-constrained world Russia’s desire to reassert control over its own resources, fair or foul, will rise further.

    • PS. Even the WSJ is in on this:

      Peak Oil: “Da” Say Russian Oil Execs

      Hoping more investment might halt or reverse the decline, Russia plans to cut taxes in the oil sector. Says the WSJ:

      It may not be enough. Lukoil’s Mr. Fedun says Russia’s oil industry needs $1 trillion of investment during the next 20 years just to maintain production of 10 million barrels a day. Analysts worry the tax cut is inadequate to achieve that. “We still do not see it generating enough free cash flow to the industry…to support higher investment levels,” Citigroup said in its report.

      While the Russian government is still loath to throw in the towel, Mr. Fedun, 52, told the Financial Times that Russia has already peaked: “He believed last year’s Russian oil production of about 10m barrels a day was the highest he would see ‘in his lifetime’.”

      Instead of running hard just to slip back slower, the far more rational thing from Russia’s perspective is to start decreasing oil production now, artificially, at 10% a year until production is in line with domestic consumption (or slightly higher to take advantage of the huge oil prices said reduction will create).

      This would be much cheaper than spending hundreds of billions of dollars, it will save resources for the future (leaving oil in the ground is a form of saving), it will automatically wean Russia from its (budget’s) oil dependency and will provide a stimulus to domestic manufacturing and hi-tech. It may even help it become a more liberal and accountable society.

  5. This post got me reading a bit about Russian geography, and it raised a question in my mind. It does seem that Russia’s population is very much concentrated in the west, including the far north.

    Surely this contributes to Russia’s suicide rate, alcoholism and general bad health? Is there any reason why Russia would not, in future, fund more constructions in the south? (incidentally, it does seem that from what I’ve read of Tartarstan, Anatoly’s views on secularism of Russia’s Muslims is correct: it is far from being the Kosovo of the East)

    Obviously when Yeltsin put the dated Soviet infrastructure on the free market it resulted in vast depopulation of rural Russia because oil revenue was concentrated in Moscow and St Petersburg. But now that the economy has become recentralised it may change. In Britain, there is an urban exodus. In the country there are large housing developments, even on flood plains.

    Interesting comments re Israel and Russia. It demonstrates why I distrust neo-liberalism: it is based on the idea that one political ideology can be applied to different people with different histories. Personally, I lean somewhat towards social libetrarianism and dislike being told what to do. Yet I realised that Russia does not have our history and if a future President provided incentives for people to live healthier lifestyles, it could have a lot of positive features. If Medvedev reintroduced the concept of ‘the pioneers’, it may have long term health benefits for modern children?

    Of course I am totally ignorant, and maybe the irrigation/ polution is a major factor (as it is in Central Asia) but would be interested if anyone knows?

    (Extra bonus question: I recently read The Possessed by Dostoyevsky; does anyone know roughly where it was set? I don’t think it says but there may have been hints through toponyms)

  6. Breadbasket of the world…maybe! They should be one of the planet’s great winners of global warming bingo.

    To me, Russia’s current crisis comes from dictatorial leadership; whose work was it got foreign investors to stay away? Even when compared against Soviet leadership, to me, Putin’s been worse, because the Soviets mostly had checks and balances in their autocracy. We can only hope that the PM/President thing works better for Russia.

    Also, I gotta shake my head at using Stratfor as a source. Not only are they often wrong, but in that article particularly led you astray. Think any of those waterway connections came for free????!!?? Of course not! It look $b$s of canal investment to hook that stuff up;. But good roads, then canals, then RRs, then Interstates did come to win elections. Our CA Imperial Valley, our I-10 are both also particularly tough infrastructure we’ve chosen to invest in, and have seen returns from.

    The US has never been stragegically isolated. The US started out with it’s enemy the UK just next door and has always been a trading nation. It started off with enemies on every border as well; though, deliberately ethnically cleansing a slice of continent’s previous owners, sigh, will do that. It’s true that we had certain possibilities of long-term conquest that not so many other countries’ve had; but Russia also conquered alot of turf.

  7. The soviet legacy is something we can either love or hate but none of us can ever ignore it. I don’t consider that Soviet Russia was a competition to USA in terms of money and power but I found it to be more of an ideological conflict. In that ideological conflict, US clearly has won and the future for Russia is clearly unknown.

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