Q[&]A with Thane Gustafson, Pushkin House Russian Book Prize shortlisted author of ' Wheel of Fortune'.
How did you become interested in Russia?
I was a chemistry major and always had an interest in science. I tried to pursue topics at the crossroads of politics, economics and science. I worked in the 1970s for the National Academy of Sciences on a project with the USSR Academy of Sciences, but that all came to an end with the Soviet invasion of Afghanistan and the US boycott of the Moscow Olympics. Then I worked for the Rand Corporation on technology transfer and export restrictions, looking at the apparatus the KGB had developed to scour the world and make off with whatever the bosses were interested in. It was an extremely inefficient system. I concluded the Soviets really didn’t get their money’s worth because technology transfer is ultimately done through people. What works is when people become the vehicles for something new taken from one setting to another.
How does that apply to oil?
When the Iron Curtain came down, two worlds that had been completely cut off suddenly came together. In the oil industry, petroleum engineering and geology was much the same but everything else was totally different because of the way the Soviet Union had grown up in virtual isolation since 1920s. Nevertheless it had become the world’s number one producer, a unique case of a homegrown industry with very little contact with the West.
What materials did you draw on in your research?
At the start of the 1990s, I was hired by BP when John Browne formed his first Russia teams. It was a very heady experience. As Trotsky wrote in his memoirs, the last person to ask what happened during a revolution is the one who witnessed it. There were very complex things going on at every level and I was present at ringside. This is a memoir in some basic respects.
What is the key message of the book?
It’s about the meeting of two worlds, of finding a common language and a common basis for doing business. What fascinated me was the realisation that in so many respects we still haven’t really overcome the difficulties. The western companies have had a very frustrating experience. Some have made money but it’s been a rough ride. The one that came out best is Schlumberger [the oil services provider]. The plain truth is the Soviet Union is still alive and well despite the very real transition to a market economy and the end of Gosplan. We take it as an article of faith that money today is worth more than money tomorrow, for instance. This has been a very difficult concept to absorb for people in the Soviet oil industry. They consider the western approach as barbaric. The idea that you would develop the field as quickly as possible to get as much oil as you can now struck them as a monstrosity.
What do you think about the links between Putin and Khodorkovsky?
Putin was an archetype of a fairly low-ranking KGB officer who suddenly found himself adrift in the St Petersburg of Anatoly Sobchak, turned out to have considerable ability as a manager and administrator, and so became de facto governor. Khodorkovsky was a younger man who had just finished a degree in chemical engineering and knew nothing about the oil industry. It became technology transfer in action. He brought in Schlumberger and told them to take over the company. Yukos was a company run on the principle of oil today is better than oil tomorrow, entirely on the principles of the western approach.
How do you explain Khodorkovsky’s fall?
Khodorkovsky was no angel and Yukos was not a martyr of capitalism. In many respects the company was organised like the Soviet Komsomol: highly authoritarian, with a western and a Russian chain of command, some of which was out of sight, those responsible for enforcement and lubrication. What happened was a product of Khodorkovsky’s own personality. He himself said he was too young, and had not grown the protective shell that even slightly older officials who had begun their careers in Soviet period had developed. In the end, the company was not so much taken over as it was lynched. Russia is a descendant of a centrally planned economy and lived by those principles for half a century. Putin was someone who came out of the St Petersburg milieu along with elite he brought with him: from liberals like Kudrin to conservatives like Yakunin and Sechin. The destruction of Yukos can also be explained as a temporary alliance of these two groups: liberals who wanted to seize tax revenues and conservatives who found Khodorkovsky odious. They were able to agree on the one point: the oil industry had to be brought to heel and Yukos had to be subdued.
What will happen in the coming years in Russia?
The power and reach of the Russian state, and of the oil industry, are closely linked. The oil industry coasted on the Soviet inheritance for the past 20 years. It’s wasting an asset, and the Soviet legacy is running down. Although this is not terribly noticeable yet, we are about to enter a new period for oil, with the move from western to eastern Siberia, the Far North, offshore. That is much more costly to develop. Meanwhile, the intersecting dependence of the Russian state on oil revenues is going up in relative and absolute terms. Last year, oil and gas taxes were 52 per cent of the Russian budget and they are increasing as Putin piles on more priorities and the population ages. What we’re going to see sometime in the 2020s is the intersection of declining oil rents and rising budget needs. What’s at stake is the stability of the whole Putin system. The one thing that could offer a reprieve is if they can make 'tight oil' [more difficult to extract] work in western Siberia. If the profits don’t hold up, the entire system is destabilised.
Do you have plans for a future book?
Yes, for sure! The next one will be on gas and the challenges in the EU-Russia relationship. In many ways the gas story is even more interesting than oil.