Russia Stuck in Fossil Fuel Trap

The publication of Russia’s 2021 National Security Strategy this month provides an opportunity to assess Russia’s vision of its role in a changing world. While the first new Russian National Security Strategy since 2015 seeks to isolate the Russian state and people from “Western hegemony,” Russia will continue to be tied to the West through its overreliance on energy as the foundation of both its economic strength and global relevance. The document emphasizes the need to transition to a new “low-carbon” technology base, but offers no viable pathway to that objective. Without such a pathway, energy will continue to dominate Russian domestic and global relations in the decade to come, keeping Russia and the West linked as co-dependents even as they engage in a struggle for geopolitical dominance.

On Jul. 2, Russian President Vladimir Putin signed into law a 44-page National Security Strategy of the Russian Federation that represents a sharp departure in tone, content and focus from the previous iteration, in 2015. Six years ago, Russia was still defining its policy construct in terms of liberal ideals and semantics carried over from the Yeltsin era. While relations with the US and Europe were frayed, especially in the aftermath of the 2014 Ukraine crisis, Russian priorities were on attempting to salvage these relations.

The 2021 document, which was originally supposed to be released in 2020 but was held over by Putin for revision, is more a divorce decree with the West than an offer of reconciliation. The US and Europe are defined in harsh adversarial terms, with confrontation and conflict seen more as probable than merely possible. Rather than seeking accommodation, the new National Security Strategy defines a Russian state that differs from its Western counterparts culturally, economically and politically (WEO Jun.17’21).

The US and its European allies are seen as part and parcel of a system of Western hegemony that is in a state of impending collapse. The new strategic approach is to seek not only to distance Russia from the immediate consequences of this collapse, but to be prepared to respond to acts of aggression by both the US and Europe as they collectively lash out as a manifestation of this collapse. Russia is portrayed as a nation under siege, confronting forces that seek to strangle economic development through sanctions and retard social development by interfering in Russian domestic political affairs.

Transition: Energy to Technology

One of the ways to insulate Russia from the West, according to the National Security Strategy, is to significantly reduce the influence of Russia’s fuel and energy complex (FEC) by ensuring “the restructuring of the national economy on a modern technological basis, [and] its diversification and development on the basis of the use of low-carbon technologies.” This is a very ambitious goal — and a problematic one, given that it has Russia transitioning away from a position of established strength in fossil fuels to one of relative weakness, its technological base.

Energy is the life’s blood of the Russian economy. Russia is fourth in the world as a producer of electricity, third as a producer and second as an exporter of crude oil, fourth as a producer and first as an exporter of refined petroleum products, and second as a producer and the world’s No. 1 exporter of natural gas. The FEC accounts for more than 30% of Russian GDP, nearly 58% of its tax revenue, and almost 66% of its export revenue. Energy security remains the central tenet of Russian national security, defining both its internal stability and its overall geopolitical potential.

In this regard, the National Security Strategy should be considered not in isolation but along with two other documents — the Socio-Economic Development Strategy and the Energy Strategy — when evaluating Russian strategic policy making. The Energy Strategy was published on time, in April 2020. This document has in the past focused on maximizing the effectiveness of the Russian FEC to sustain economic growth, improve the socioeconomic welfare of Russian citizens, and strengthen the country’s global status.

While past Energy Strategies have touched on the need to use the strength of Russia’s FEC to help the country develop as a leader in innovative technologies and break its singular reliance on fossil fuels, the current version places a far greater priority on turning that theory into reality.

The delay in publishing the National Security Strategy reflects its more theoretical content, a suggestion of policy direction rather than a statement of economic reality. The fact that the Russians have yet to publish a Socio-Economic Development Strategy, which serves as the game plan for policy implementation, underscores the difficulty that exists in turning theory into reality. But without a Socio-Economic Development Strategy to detail how this transition will take place, the goals and objectives of the National Security Strategy when it comes to energy security remain divorced from the reality of Russia’s Energy Strategy.

The Arctic as Microcosm

Just how this disconnect on policy formulation impacts energy security can be seen in development plans for the Arctic — a region that represents a microcosm of the problems facing the Russian energy complex as a whole. Most of the Russian FEC problems arise in the West Siberia and Urals-Volga Basin regions, the very regions Russia currently relies upon to produce the resources that drive the national economy. But there is inherent competition in these regions between the need to maintain aging infrastructure and to fund new development. That competition is weighted heavily in favor of maintenance, since new projects depend on the income the old infrastructure yields.

From an oil and gas perspective, the Arctic is a relatively clean slate. But just as it is elsewhere, the overall state of the fossil fuel capital assets and infrastructure is poor, with most of the buildings, power grid and heating network dating back before 1990. It is costly either to maintain and operate this aging infrastructure or to replace it with new, modern equipment and assets.

Developing Russia’s Arctic region presents a complex, expensive set of issues. The region already accounts for over 80% of Russian natural gas and 17% of oil production, from reserves of some 85 trillion cubic meters of gas and 17.3 billion tons of liquids, including condensate. To get the full benefit from those reserves, the potential of the Northern Sea Route (NSR) as a viable transport conduit needs to be realized. This means constructing new port facilities, including those capable of handling LNG. Lastly, Russia will need to deploy and sustain robust military capabilities in the Arctic to safeguard these strategically important resources and infrastructure.

These requirements to develop the Arctic contrast sharply with the reality of the region’s decaying social base, as lack of economic opportunity, the harsh climate, and difficulties related to a thawing tundra brought on by climate change are driving people away in increasing numbers. While the Russian policy position calls for improving the socioeconomic status of the Arctic, the reality is that limited resources and absence of an implementation strategy mean that the best the Russians can do is to adopt a cluster approach, where resources are committed to specific locations in hope that the prosperity anticipated from their economic success will spread over the entire region.

This Arctic economic development model in many ways parallels the approach taken by Russia on development of the entire nation: heavy investment in the aspects of the FEC necessary for continued economic growth, coinciding with generic policy guidance uninformed by any central strategic plan.

The goal of achieving the kind of technology base envisioned as an alternative to fossil fuels in the 2021 National Security Strategy operates more on a “wing and a prayer” than on any well-structured policy. If this approach remains unchanged, the central role played by fossil fuels in defining Russian domestic and global priorities and status will remain unchanged in the decades to come.

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