U.S. Can Reduce Russia’s Ability to Fund Military Expansion
Russia’s energy sales have a direct impact on its military buildup. Increasing the supply of energy on the global marketplace by opening up U.S. federal lands to energy exploitation would reduce the amount of funds Putin could devote to his growing weapons programs.
A National Interest study noted that
…the rearmament plan announced by President Vladimir Putin was to be funded from the golden river that was generated by the taxes on energy exports that had helped to fill the Kremlin’s coffers.”
The Wall Street Journal concurs. In an article last March, it reported that
Russian defense procurement will drop by about 10% this year as low oil and gas prices drain income from the state budget, according to the powerful head of the conglomerate that controls the key pieces of Russia’s military-industrial complex. Sergei Chemezov, chief executive of the Russian state industrial holding Rostec-the maker of weapons including Kalashnikov assault rifles and Pantsir antiaircraft systems-said he expected the Russian defense sector to contend with a decrease in government orders. ‘Oil and gas prices aren’t as high as desired, and they’re the main source of income for the budget,’ said Mr. Chemezov. ‘So, of course, it’s completely understandable that there is a reduction in defense orders.
Russia subsequently suffered when energy prices fell, but it is now seeking to return to a more prosperous mode by conspiring with other energy producing nations to limit production to increase prices. The United States has the capacity to counter this by opening up federal lands to energy exploitation. This additional source of energy would diminish Russia’s income, affecting its ability to finance its massive arms buildup and international adventurism. It would free Europe from its dependence on Moscow’s energy supplies, and reduce the Kremlin’s influence on the continent.
It might even be beneficial for the Russian people. It’s energy based economy is run by Putin and his oligarchs. It has been a major factor in the reduction of political and economic freedom within Russia. As The American Enterprise Institute notes,
State control or outright ownership of the oil and gas industry became a central element in the ‘Putin Doctrine,’ which postulated the recovery of the state’s political, economic, and geostrategic assets following the antitotalitarian revolution of late 1987-91. The state was to become again the only sovereign political and economic actor in Russia, with the private sector, civil society, and its institutions mere objects. Putin saw as nonnegotiable the state’s control of ‘rent flows’ from the sale of mineral resources, with nonstate property rights remaining ‘contingent.’ Almost a decade and a half later, the authors of an influential analytical report on the composition and division of labor in the Kremlin’s Politburo singled out “‘ong-term natural gas contracts, and the management of the natural gas industry in general and Gazprom in particular’ as one of only two areas ‘under Putin’s direct control.’ (The other sector was the largest banks.)
In pursuit of this agenda, the Putin regime has effected a steady accretion of the state’s sway over the oil industry. (Unlike oil, Russia’s natural gas production escaped large-scale privatization in the 1990s. As a result, the majority-state-owned Gazprom dominates the sector with 78 percent of the national output and has a pipeline and export monopoly.) The key to the effective state takeover of more than half of Russian oil output was a dramatic expansion of the majority state-owned Rosneft, headed since 2010 by Putin’s confidant and former KGB officer Igor Sechin. Starting as a minor company that the government tried and failed to sell in 1998 because nobody wanted it, Rosneft skyrocketed in 2004 after it took over the key assets of Russia’s formerly largest and privately owned oil corporation, Yukos, which the Kremlin had bankrupted, broken up, and sold at rigged auctions.
Opening up federal lands to energy exploitation would also have positive effects for the U.S. economy, as outlined by the Institute for Energy Research:
GDP increase: * $127 billion annually for the next seven years. * $663 billion annually in the next thirty years. * $20.7 trillion cumulative increase in economic activity over the next thirty-seven years. These estimates include “spillover” effects, or gains that extend from one location to another location. For example, increased oil production in the Gulf of Mexico might lead to more automobile purchases that would increase economic activity in Michigan. Spillover effects would add an estimated $69 billion annually in the next seven years and $178 billion over thirty years.
Jobs increase: * 552,000 jobs annually over the next seven years. * Roughly 2.7 million jobs annually over the next thirty years. n Jobs gains would be not only in fields directly related to oil, gas, and coal but more than 75% of the jobs would be in high-wage, high-skill employment like health care, education, professional fields, and the arts.
Wage increase: * $32 billion increase in annual wages over the next seven years. * $163 billion annually between seven and thirty years. * $5.1 trillion cumulative increase over thirty-seven years.
Increase in tax revenue: * $3.9 trillion increase in federal tax revenues over thirty-seven years. * $1.9 trillion in state and local tax revenues over thirty-seven years. * $24 billion annual federal tax revenue over the next seven years, $126 billion annually thereafter. * $10 billion annual state and local tax revenue over the next seven years, $61 billion annually thereafter.
Originally published on the New York Analysis of Policy and Government.