HH Russia’s Oil Industry: Surmounting The Bolshevik Legacy Of Inefficiency

Written by Douglas Rogers, EurasiaNet

As an economic experiment, the communist system of central planning constituted a major hindrance to development. This was especially true for Russia’s oil sector.

In 2017, Russia ranks among the world’s largest oil producers, contributing about 12 percent of global production. That production percentage is similar to that of a century ago: in the revolutionary year of 1917, around 15 percent of the world’s petroleum came from the oilfields of Baku, which at that time was part of the Russian Empire.

Between the booms of pre-Revolutionary Baku and post-Soviet Russia, the Soviet Union built its own massive and globally influential oil sector, although it operated in ways that differed substantially from the world’s capitalist oil industry. The major Soviet discoveries of oil deposits in the Volga-Urals during the 1940s and 50s (prompting the region to be dubbed as the ‘Second Baku’) and in Western Siberia during the 1960s and 70s thus flowed along distinctive paths—into the world’s first socialist oil industry.

In pre-Revolutionary Baku—as in the global oil industry since the era of Rockefeller’s Standard Oil—the gathering of production, refining and distribution into a single entity served to limit competition and exert control over oil supply (and price). In sharp contrast, the Bolshevik seizure of power in 1917 spawned a system in which the Soviet party-state centralized economic production and distribution, resulting in the creation of entirely separate ministries for oil production and refining, with still other ministries in charge of transport and distribution.

Centralization meant that the vertically integrated oil operations of the tsarist era broke apart. Coordination among different points in the Soviet oil supply chain took place not among enterprises themselves, but in protracted negotiations among their parent ministries and the central-planning apparatus.

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