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Russian economy

The key to Moscow’s fortunes

Oil pumps in Russia. Andrey Rudakov/Bloomberg/Getty

Since the death of Mikhail Gorbachev, says Dominic Lawson in The Sunday Times, we have been inundated with explanations of why the Soviet Union “disintegrated”. In Russia, Gorbachev gets much of the blame; in the West, Reagan gets much of the credit. No one has mentioned the true cause: “hydrocarbons”. Then, as now, Moscow’s one source of wealth was its vast oil fields, which powered not just the eastern bloc but also the West. All that changed on 13 September 1985. That was the day Saudi Arabia’s oil minister announced a shift in policy: over the next six months, oil production in the gulf state increased fourfold, sending the price plummeting. The Soviet Union lost about $20bn in oil revenue a year – money without which it simply could not survive.

Vladimir Putin, by contrast, has enjoyed steady, “and sometimes precipitate”, rises in the oil price. This has enabled the Russian president to pursue his aggressive foreign policy: strikingly, every one of his “military adventures” – Georgia in 2008, Crimea in 2014, Ukraine this year – has “followed a period of surge or prolonged strength in the crude oil market”. The big question now is how the West should respond. The G7 nations have agreed to impose some sort of price cap on Russian oil by December, though the details remain unclear. Whatever the solutions, we must accept that “we are in a confrontation with Russia”. And just like in the Cold War, “hydrocarbons are the key to Moscow’s fortunes”.