The usage of petroleum oil dates back thousands of years ago, with the first known handling of petroleum-based asphalt used more than 4,000 years ago to construct walls and towers in ancient Babylon. However, since the appearance of motorized vehicles, ships, and aircrafts, the significance of petroleum as an economic and military necessity has remarkably increased for regional and global hegemons. In this context, the recent steep devaluation of oil from $104.05 in June 2014 to $43.93 in March 2015 depicts the volatility of oil prices. As is any case with price fluctuations of a specific commodity, there are governments who benefit and governments who suffer consequences. This is due to either a lack of contingency planning in these circumstances, or an inadequate level of institutional functionality that can be used to effectively mitigate the resulting budget shortfall. Therefore, the number one question that should be asked is: “Which countries fall into each category?”
First of all, it is important to note that not all oil producers should be viewed in the same light. Countries such as Libya need oil prices to hover at $184 in order to balance their fiscal budget for 2015, meanwhile Qatar needs oil prices to be less than half of that at $77. Then, there are countries that require oil prices in between these two extremes, namely Russia, which needs prices to be maintained at $105, and Saudi Arabia, which requires prices in the range of $104. Taking into consideration these discrepancies in prices that are needed to balance the fiscal budget, Russia has the foremost potential to cause a major ripple effect in its traditional spheres of influence, internationally and at a domestic level.
Since 2011, Russia has embarked on a crucial military modernization program that has mainly focused on its anti-ballistic missile defense capability, the improvement and viability of its nuclear triad, its special forces, and the professionalization of its armed forces. By planning on replacing its aging and ill maintained Soviet-era weaponry, Russia aims to reclaim some of the immense political and military clout that its predecessor once held, in an era characterized by zealously fought proxy wars in the alleged name of communism or democracy. However, unlike the Soviet Union, Russia is a semi-presidential republic with multiple aspects of a democracy, and thus, does not have any basis for an easily exportable ideology. With this in mind, the current drop in oil prices have left Russia in dire economic straits, forcing the country to slash 10% off of its funding to economic sectors, while simultaneously hiking up the military budget by 33% to 3.3 trillion Rubles (approximately $50 billion). In addition, Russia plans to spend $4.4 to $4.7 billion on research and development, but according to Deputy Defense Minister Yury Borisov, “There is no upper limit”.
Nevertheless, the specter of a resurgent Russian Empire that would have absolute influence over its traditional domains, or a neo-Soviet Union that would be able to project both political and military influence into the far reaches of the globe, would be a gross overstatement of Russia’s ambitions and capabilities, given its acute financial difficulties. For all the alarmist media frenzy that surrounded the March 2014 annexation of Crimea by Russia, it should be kept in mind that Russia already had a substantial network of air and naval bases in Crimea before the annexation. Markedly, approximately 77% of Crimean’s said their native language was Russian and 55% self-identified as ethnically Russian.
Therefore, the view that Russia poses a substantial threat to Western European nations is quite a fallacy. Considering that Russia will continue to be very dependent on selling its natural gas and oil to European clients for the foreseeable future, the country simply cannot afford to escalate frozen conflicts, such as the stationing of troops in South Ossetia and Transnistria. Even when considering the ongoing conflict between pro-Russian rebels and the Ukrainian government, the chances of Russia substantially escalating their support for the rebels are slim. With oil prices at their lowest point since 2008, the Russian government would have to focus on placating its increasingly economically downtrodden populace through an intense propaganda campaign. In effect, this campaign would exploit the narrative of a shared Slavic-Orthodox culture, under threat by an encroaching NATO presence into Russia’s traditional sphere of influence.
The combination of financial instability due to a reliance on oil, and the need to maintain influence in a region that is becoming increasingly dominated by NATO and its allies, might seem to create the perfect Molotov cocktail for chaos. On the contrary, Russia is on the verge of a more cooperative outlook. This theory gained credence after a study of 153 countries in the last 50 years, done by political scientist Cullen Hendrix. The study showed that high oil prices consistently make oil-exporters more aggressive towards their immediate neighbours, while they do not affect the behaviour of non-exporters. This has been demonstrated in Crimea and Eastern Ukraine during the first half of 2014, when oil still hovered at around $100 a barrel. Moreover, this is illustrated through the general lack of interest on Russia’s military intervention in Ukraine past the highly localized cities of Donetsk and Luhansk oblast. The reasons for this are simple. Nationalistic rhetoric aside, Russia does not have much to gain from an economic or militaristic standpoint, seeing as the per capita income of Ukraine is roughly a third of Russia’s. In addition, most of Ukraine’s heavy industrial capacity is located in the Eastern regions, especially in the area of Donetsk and Luhansk.
Accordingly, it is in Russia’s interest to slowly de-escalate the situation, or at the very least, maintain a frozen conflict for future political leverage. If so, the economic ramifications that would ultimately accompany a steep escalation would not come into fruition, thereby adding on to the already acute, oil induced, economic condition Russia is facing today. In the near future, Russia will continue to rely upon oil for 68% of total export revenues. However, with a permanent seat on the UN security council, the procession of a highly active nuclear triad, and a military might that is currently only surpassed by the United States, Russia’s rhetoric of an increasing threat by NATO seems to be just that, mere rhetoric.