Customer Reviews

Petrostate: Putin, Power, and the New Russia

5 star:		(6)
4 star:		(4)
3 star:		(2)
2 star:		(1)
1 star:		(0)

 

 

As a student of Russian energy markets, I can confidently say that this book is rife with factual errors. Simple things like calling Iran one of the top gas exporters in the world (Iran doesn't export gas at all, it imports it, though Iran does have some of the largest gas reserves in the world); claiming that liquefied natural gas (LNG) often needs long-term contracts of "two years" to sell (usually needs contracts of 10-20 years); contending that OPEC regulated the oil market through production quotas from its founding in 1960 (the production quota system wasn't formally instituted until 1986-1987); etc. The conclusions that Goldman draws from his analysis are largely correct because he knows Russia well, but a lot of the (incorrect) detail he includes demonstrates an interested observer's - not an expert's - understanding of energy markets. If you are an interested observer, go ahead and buy this book. If you are a researcher, you should certainly corroborate the facts in this book.

Overall, the book is filled with detail, most of it correct but some not. I certainly learned something from reading it, things that had slipped under the radar, but I am not convinced that one should trust Marshall Goldman's grasp of energy markets.

"Petrostate" provides good insights into Russia's comeback after its late 1990s nadir, as well as an understanding of its economic-political strategies.

Russia regained its place as the world's largest oil producer in 2007; energy generates about 30% of Russia's GDP and 60% of its exports. Russia is a major energy provider to Europe and the U.S. The U.S. buys $10 billion of Russian petroleum, LUKoil bought nearly 3,000 U.S. filling stations from Getty Oil and Mobil. Gazprom also provides LNG to the U.S., via a swap arrangement with Algeria. It also provides natural gas to 405 of Germany's homes and many of its factories, as well as much of the rest of Europe. Russia's Gazprom pipelines also play a major role in delivering gas from the "stans."

There is a fair amount of evidence that CIA chief Casey (Reagan administration) worked with Saudi Arabia (mad at Russia for invading Afghanistan) to break Russia's economy via increased S.A. production - however, the data do not provide a clean fit supporting this theory. Low energy prices in 1998 led to Russia defaulting on its debt, as well as many bank failures within the country. Prices quickly recovered in 1999, and along with a 40% increase in production between 2000-2004 transformed Russia into a major holder of foreign currencies. Russia has avoided the "Dutch Disease" because it didn't have much manufacturing, other than defense industries, to start with.

Mass privatization did not begin until mid-1992 under Yeltsin. Oligarch-controlled banks loaned the state money in exchange for stock certificates; most of the state's economic problems were due to companies and individuals failing to pay taxes - only about 3 in 70 did, and even those usually paid much less than owed. It was agreed that if the banks were not repaid, the stock would be sold. This occurred in mostly rigged auctions that, eg. excluded foreigners, and usually at far less than the stock was worth. Thus, auctioning Yukos brought $309 million, vs a market value soon afterwards of $15 billion. Similar actions occurred in the mining industry. Other assets were given away in return for eg. TV stations providing support for Yeltsin.

Capital requirements to establish private commercial banks were only $75,000 in 1989, after inflation; required $750,000 in 1987. "Oligarchs" could achieve this via sales of consumer goods immediately after the ban on their sales was lifted; other sources included trading commodities, taking advantage of government positions to sell hard-to-get commodities (eg. lumber). Legal chicanery and thuggery allowed further aggregations - government insiders during the late 1990s used their positions to exchange rapidly inflating rubles for IMF and Goldman Sachs loans denominated in dollars. (LTCM went bankrupt during this period. Another "trick" was suddenly changing stockholder meeting locations without notifying stockholders not part of management.)

Many banks failed, however, during the commodities downturn, and millions lost their savings - including Gorbachev. Putin stepped in and replaced Russia's graduated tax (maximum 30%) with a 13% flat tax, set goals of increasing GDP 7%/year (double in ten years), and increased military spending 27% in 2005 and another 22% in 2006.

Putin's 1997 dissertation proposed creating effective companies in natural resources and using them to advance Russia's national interests after commandeering them. He also wanted to open manufacturing to foreign investment (help modernize), but retain operating control - again to focus on national interests. ("National interest" was equated with low prices within Russia, and suspending deliveries to foreign countries that don't support Russian policy.)

Putin seized the assets of media moguls that criticized him, then replaced oil leaders involved in "asset-stripping," and maneuvering to sell large portions of their companies to American firms, reach long-term agreements to sell oil to China, and failing to pay taxes. (Oil leaders were also deemed guilty of black market activities, an economic crime in Russia. Further, there was strong evidence some were involved in several murders of both public leaders and private competitors.)

Russia's re-nationalizing industry (typically 50% + 1) has given it leverage greater than with nuclear weapons (they were only useful as threats). Reagan tried to block construction of a new gas pipeline from Russia into Europe, and backed it up by banning use of G.E. pumps and other pumps using American parts. Britain, however, ignored Reagan and supplied the equipment. (Cheney has subsequently made similar efforts elsewhere against Russia, and failed as well.)

Russia has the world's largest reserves of natural gas. Ukraine was receiving gas at about 1/3 the world market price, was warned that if wanted closer relationships with the West it should pay Western prices, and then was cut off when it refused to do so and instead diverted Germany's supplies. Similar haggling has occurred involving Georgia and Hungary - the latter regarding its possible agreement to host a competing gas line.

Russia now is claiming ownership of the North Pole sea bottom as an extension of Russia - experts believe it is rich in energy resources.

Petrostate provides enormous amount of information about russian oil and gas industry and state policy.

The book connects the dots between people, corporations, policymakers and events which took place in the country; it explains dynamics which dominated Russia from the times oil was first discovered to present and into the future.

Half of the book is devoted to Vladimir Putin and his strategy to re-emerge Russia as an energy empire. Mr Goldman goes in-depth to explain how Putin transformed profit-oriented, privately-owned oil and gas corporations into "national champions" which promote state's interests above their own; how oil, gas, and pipelines are used to shape Russia's foreign policy and methods Russia uses to advance its interests in Europe and Asia.

If you were always curious about privatization in 1990's, Russian oligarhs, and Ukraine having gas supply cut off once in a while, you will read this book like a thriller. Mr Goldman understands Russia very well and shares a unique vision into recent events in the country and the big picture of Russia as energy superpower.

As another reviewer has noted, this book contains some surprising factual errors that really should have been caught during the editing phase. Additionally the prose is a disappointing admixture of lightweight and leaden. The writer, a noted academic, is obviously trying to avoid the worst excesses of academic writing (whereby the reader almost invariably drifts off into a catatonic slumber after page 3) but does so by adopting what might be termed "Journalistic 101" which is scarcely any better.

The best parts of the book (sadly all too brief) concern the manner in which some of the oligarchs built up their overnight fortunes. The rest is plodding analysis of Putin's well-executed retaking of Russian business assets in order to strengthen the State. Anyone who is utterly unfamiliar with Russia may be surprised by the cynicism and brutality employed both by the oligarchs and by Putin's government; everyone else will merely find a little supporting detail.

It would have been illuminating to have a section in the book that tries to explore why so many Western businesses ran headlong into what turned out to be a lengthy yet entirely predictable fleecing exercise. Western banks, companies and governments alike turned willfully blind eyes towards all the warning signs, with the result that they transferred vast amount of money, equipment and expertise to Russia essentially gratis. This is really the story that should have been explored, but unfortunately Petrostate doesn't cover this ground in any detail at all. Furthermore, the author provides the usual overview of the insider fighting that has broken out among the different siloviki factions and comments on the inevitable corruption and inefficiency that results from having State officials operating simultaneously as corporate agents as though this were a problem unique to Russia. Another interesting book remains to be written about precisely this type of gross corruption in the USA. Enron didn't perpetrate massive fraud without plenty of paid-for Congressional air cover; Bush appointed the CEOs of the major US oil companies to his secret committee on energy policy; Cheney's former company Halliburton profited wildly from the Iraq war (and Cheney still has plenty of Halliburton stock...) and so on and so forth. While it is true that Russia is opaque and corrupt, the fact is that the USA is much closer to Russia, China and Italy than it is to Denmark, Norway, the UK or Germany. Perhaps, in the end, the only major differences between the USA and Russia are (i) lawyers make a fortune in the States and directly contribute to lawmakers' coffers to ensure that this state of affairs continues ad infinitum, and (ii) ordinary Russians are wryly aware of the pervasiveness of corruption in their country whereas Americans are for the most part blythly oblivious. But perhaps there's no easy market for a book that tells the truth about the USA, whereas there are plenty of folk who want to read about Big Bad Russia.

All in all this is not a "must read" and we can only hope a more adequate account of this extraordinary story will one day be published by a more capable writer.

The book opens with the sentence "Russia once again an energy superpower and that is exactly what the book is about.

Russia was the most important non-American producer at the start of the 20th century, it was a very important producer during the Cold War years and it lost it completely in the break up of the Soviet Union.

After the desatrous privatisation under Jeltzin the industry was in tatters. Goldman describes clearly and with good analytical depth how under Putin the country slowly got its grip on its most important natural resource back. Needless to say that the methods used were heavy handed and certainly in a general sense morally and legally questionable. This is not new and the saga continues as we read in the news paper every day ( see e.g. the deleopments around the BP-TNK joint venture).

Goldman also analyzes the role the energy industry plays in the overall aim of Russia to be an important power once again. In particular Europeans should watch this with intensity as they are more and omore dependent on Russia for their energy, in particular gas.

In all, a good, readable and enjoyable analysis. The 5th star is missing for the technical flaws pointed out correctly bey another reviewer. Not hurting the conclusions but a bit sloppy indeed.

This book is an important read for anyone with an interest in foreign policy and the role that energy is playing in it.

I have read the book and listened to Marshall Goldman speak, and read the other reviews, and am writing this because I think the other reviewers may be missing an important point. It is not so much about the details of the book, and I am sure there are some factual errors. The story is about Putin and about Energy, and how Putin has turned Russia from a bankrupt nation to an energy and economic. powerhouse. Goldman's main message is that we should understand how Russia is successfully using energy as a tool of foreign policy. For example, much of Europe, particularly Germany and Eastern Europe, is becoming dependent on Russia for natural gas, a principle source of their energy supply. Russia is building Nord Stream, a pipeline under the Baltic to deliver natural gas directly to Germany. Russia has a pipeline under the Black Sea to deliver natural gas through Turkey up to Hungary. Russia recently reduced the supply of oil to the Czech Republic, a clear suggestion that Russia is unhappy with U.S - Czech Missile Defense Agreement. Russia is attempting, with some success, to create a pipeline monopoly for delivering natural gas to Europe. Goldman shows how Gazprom is squeezing the supporters of the non-Russian NABUCCO Pipeline from Azerbaijan through Georgia to Turkey and thence to Europe, and how Russia, through Gazprom, particularly is creating partnerships with other gas producers, such as Algeria, to be their distribution arm, closing out possible competitors. Goldman describes the concept of having Russian company officers being simultaneously key members of the government, therefore assuring that the companies are supporting government objectives and policies. Gazprom is a particularly good example.

Of course, all of this Russian power comes from a simple fact: the price of oil and natural gas has jumped since 1998, when Russia was almost bankrupt. Putin is the beneficiary even if not the cause of this phenomenon.

One might get dramatic and say that Russia has invaded Europe, with natural gas pipelines rather than tanks. Perhaps we should take note.

The book is a generally very good description of the rebound of Russia's economy,finances,state power and political influence in the first decade of the 21st century and as such is a study not only in economics but in history,politics,geography as well as general information on Russia.Its flaws come from the fact that like other reviewers have pointed out, there are factual and spelling errors (for example,he describes Medvedev as a siloviki,which as anyone with a basic knowledge of russia knows is laughable and he spells chechnya as c-h-e-c-h-n-i-a.) and the writing is sometimes sensational(for example he describes Putin as a James bond Villain and implies that Russia now is more powerful than the Soviet Union because of its "energy weapon",ignoring the fact that the Soviet Union was much more powerful owing to its ideology,military, much larger economy and better scientific base).However, Goldman does a very useful job in describing how oil and gas have helped lift Russia out of the terrible depression of the 90s.In doing so he also destroys a number of myths such as the fact that Khodorkovsky far from being a democratic martyr was a criminal who tried to buy control of parliament,he even describes the fact that there is a lot of reason and circumstances to show that khodorkovsky being involved in murders .This is important because it busts the myth that Khodorkovsky was a good guy.He also shows that although high oil prices were a blessing for Putin ,he did do a lot to take advantage of this by creating a favorable macroeconomic environment and hiring the right kind of people (such as Alexei Kudrin,whom a lot of experts have recently praised) and that he wrote a thesis long before coming into power to suggest using oil and gas as a way to revive Russia's economy and international influence. All in all , I highly recommend this book.

As The Economist noted in one of its quotes pasted above, this book certainly WAS "snappily written," i.e. with haste and little attention to detail. Some other reviewers stated above that some of the factual information--statistics, etc.--is off, which is true, so I wouldn't recommend using this as a research book. If picking it up purely out of interest, however, it is worth completing, even though it can be a dry read at times. The author, who is a professor, tries to offset the blandness of his usual academic writing with some informal, more flamboyant language, puns, jokes, and the like. However, these somehow don't really flow with the text as well as they should--they feel forced, which, of course, they are.

Still, the book is valuable for its wealth of names, which, as someone else mentioned, gives you the "whos-who" of the Russian oil and gas industries. It also provides a good explanation of the post-Soviet privatization of state-owned enterprises. The chapter on the corruption and intertwined associations of the oligarchs is particularly riveting and its account of the various assassinations and such that took place reads like a conspiracy novel.

Also, a precaution: This certainly isn't a book to pick-up as a gift, unless the recipient has a decisive interest in Russian affairs.

I enjoyed reading this book as I enjoy reading books on Russian history. I didn't know that Putin had that much control over the petroleum industry in Europe. I live in the United States and don't hear much about how Russia controls some of the world's oil. We only hear about Saudi Arabia and Iraq having oil. I now know that the Caspian Sea has a lot of oil in it! I thought it was only famous for cavier. I also now understand how the pipelines get distributed to almost every country in Europe. No wonder their gas is six dollars a gallon!

I like the fact that the author Marshall Goldman used Demokratizatsiya, the Journal of Post-Soviet Democratization to hightlight his notes. I, Brian Simonb, was Book Reviews Editor for this journal during 1995-1996. The author was very up to date and discussed the implications for the surrounding countries, the regional effects and the world. The author discusses the situation and comments on how Russia is seem by its neigbors, the region and the world.