Essay About Oil Industry

Essay About Oil Industry-63
Oil and natural gas have brought Russia both economic and political gain, and while increased demand from Asia and Europe present an opportunity for greater profits, Russia faces the challenges of falling world prices and new pipelines that would not be under its control.Following the soaring prices of natural gas and oil during the greater part of this decade, Russia's economy surged as an influx of petrodollars and increased exports enriched the country.However, following years of financial crisis and the collapse of the ruble, Russia became a formidable contender on the world oil markets due to an increase in investments, both foreign and domestic.

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This control of the flow and direction of oil and gas to Europe and central Asia has amassed Russia a significant amount of political power.

Furthermore, Russia's ability to dictate gas prices in the form of long term contracts with other countries has given it a political advantage in international relations.

Furthermore, Russia's control of the existing pipeline distribution network allowed the country to leverage its position as a supplier to neighboring countries and gain political power.

Opportunities arise from both greater demand in the increasingly lucrative European markets as well as emerging Asian economies seeking to access Russia's pipelines.

This, in turn, gives the Russian government the power to set gas prices and establish long term contracts with foreign buyers, making it the largest earner of hard currency for Russia(Pirog 2007, 6), so called “petrodollars” (Hill 2002, 28).

Gazprom is also the largest source of revenue for the government, contributing approximately twenty four percent of the budget (Woehrel 2009, 2).However, the recent collapse of oil and gas prices threatens Russia's future prosperity and Europe's fears of becoming overly dependent on Russian gas prompt the idea of new pipelines that circumvent Russia altogether.Oil and natural gas exports have been a staple of the Russian economy for decades.Furthermore, the terrorist attacks of September 11th, 2001, and the subsequent invasion of Iraq by the United States sent the world price of crude oil soaring to historic levels (Williams).This combination of increased export capacity and volume, investments by domestic and foreign companies and record-setting world prices fueled Russia's economic expansion.Other pipelines run similar routes between the Caspian region, across the Black Sea, and to southern Europe (Pirog 2007, 12-14).Thanks to Gazprom's exclusive control of this network, Russia has gained a significant amount of control over the supply of gas to Europe and Central Asia.However, during the years leading up to and following the collapse of the Soviet Union, production fell sharply (Cooper 2009, 15).The administration of Boris Yeltsin saw real GDP fall by thirty percent and inflation rise to thousands of percent (Cooper 2009, 2).Key to this competitive advantage in natural gas is Gazprom, the largest gas company in Russia.Essentially a government owned and operated monopoly, over fifty percent of the shares are owned by the government (Cooper 2009, 14).

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