- The Washington Times - Wednesday, March 8, 2006

A recent trip to Russia left three indelible impressions: (1) The Second World War is still, 60 years after its end, an ever-present, all-consuming fact for Russians — even those born long after — in a way that nothing has been for Americans since our Civil War.

Everywhere you go there are fresh flowers on tombs, on monuments, on immaculately preserved tank traps showing how far the Germans got before they were finally stopped. Every Russian wants to tell you about how the war changed their lives, or their parents’ lives — or for the young, their grandparents’. You cannot get away from it.

(2) Americans like to think we are a nation of contradictions. In that respect, at least, we are not in the same league with the Russians. Even after the breakup of the Soviet Union, and creation of separate nations for Lithuanians, Ukrainians, Georgians, Kazaks, Uzbeks and on and on, Russia is still amazingly diverse — ethnically, religiously and linguistically.

More fundamentally, as in the time of Peter the Great, there are still many Russians who long to be more advanced, more Western, to be European. Just as many, maybe even more — the “Old Believers” — want Russia to be Russian, to stay pure from Western corruption, and, where possible, they want to drag it back to where it came from.

And somewhat perversely, there may not be all that much difference between them. As one totally modern, Westernized, cosmopolitan young professor at the State University of St. Petersburg put it to me, in perfect English, “As the old saying goes, ‘Scratch a Russian, find a Tartar.’ ” Then he paused, smiled, and said, “Even me.”

(3) Traffic in Moscow is horrendous — worse than Los Angeles, or Paris, maybe as bad as Bangkok or Cairo. You see lots of old, banged-up Ladas and Volgas, and even the occasional pathetic East-German Trabant. But there is a striking, overwhelming crush of Mercedes, BMWs, Volvos, Bentleys, Land-Rovers, Infinitys, Ferraris, Lamborghinis. There are more fancy cars stuck in the traffic in Moscow than in Los Angeles or London.

On the buses, you see little old ladies dressed very well — the way you see chic little old ladies in Paris and Florence, as many if not more than the legendary “babushkas”: fat peasant women wearing headscarves and old sacks for dresses.

Shops with names like Gucci, Ferregamo, Versace, Burberry, Ermenegildo Zegna, Louis Vuitton are all over the place — and their customers are locals, not tourists.

In Moscow, in addition to lots of new buildings going up, you see dozens of the classic Italianate palaces being fixed up, and in St. Petersburg, hundreds are being beautifully restored.

And as you are stuck in traffic, staring at the dingy Soviet-era apartment houses that still dominate Moscow, you become aware of a recent, noteworthy phenomenon: Hanging from the windows of tens of thousands of apartments are brand-new air conditioners. In a land where summer is very short and not terribly ferocious, lots of people can spend thousands of dollars on expensive, imported Japanese air conditioners.

Russia is doing very well, thanks to the spike in oil prices, and a lot of it is getting spread around. Obviously there are great disparities of wealth, but just as obviously, what you see is not just a thin veneer of oligarchs surrounded by starving hordes.

Some economists, such as Clifford G. Gaddy of the Brookings Institution note that for many years, Russia, like so many Third World countries, has had a one-crop economy. It may come as a shock to Americans, but many experts attribute the collapse of the Soviet Union not to President Reagan calling on President Gorbachev to “Tear down this wall.” Instead, they say, a decade of cheap oil crippled the Soviet economy.

Economists lament so much wealth now is going into SUVs and air conditioning and fixing up old buildings rather than into more income-producing investments. In fact, while oil is, obviously, the dominant fact of Russian economic life, the Russians have made a couple of stabs at diversifying.

For example, there are laws requiring oil companies to buy equipment from Russian manufacturers, which has helped finance development of some industries, such as trucking and other heavy equipment. There also has been a tiny effort to imitate Norway’s siphoning off of some oil revenues to create a long-term capital investment fund.

However, the bottom line is that the Russian economy depends on the world price of oil and on the Russian oil patch’s ability to maintain supplies. The first is debatable; the second is even more in doubt.

Russia’s supply of easy, cheap-to-recover oil was declining for years. Recently, production increased largely because of the previously independent oil company, Yukos. In the 1990s, Yukos bought rights to the oil in wells thought exhausted. In many cases, Soviet managers had pumped too much oil in too little time, trying to meet artificial quotas. Yukos brought in up-to-date Western technology and improved management techniques to aid secondary recovery of crude, and dramatically increased production — for a while.

But at the end of 2005, Yukos production leveled off, partly because the oil available for secondary recovery is limited and partly, some say, because the Putin government expropriated Yukos and it is now run by the same people running the state-owned companies.

Meantime, state-owned oil companies, which have a monopoly on the rights to new oil, have more or less given up hope of finding crude in the traditional Siberian fields and have moved exploratory operations eastward, to places like Kamchatka, where drilling costs are dramatically higher, and production and transportation costs are certain to be enormous.

In 1977, the CIA published a report dramatically titled, “The Impending Soviet Oil Crisis,” which predicted that within 10 years the Soviet Union would become a net importer of oil. That prediction, obviously, was wildly inaccurate, perhaps partly because the Kremlin’s leaders read the report, took the message to heart and provided the resources necessary to keep production growing.

How accurate are current Western predictions about the future of the Russian oil industry? What will the current leaders in Moscow do about it? What should the United States do about it? Would we rather get oil from Russia than from the Middle East, from Venezuela, from the Alaskan National Wildlife Reserve?

George H. Lesser has reported for more than 30 years on international political and economic developments for both U.S. and European publications. He has been based in Washington, New York, London and Brussels.

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