Nature's Evil

THIRTEEN

Oil

Oil’s main difference from coal is that it is a liquid. Trade is movement, the overcoming of friction, and the resistance of liquids is less than the friction of solid bodies. This is why a calorie of oil energy takes less human labour to produce than a calorie of coal energy. Hundreds or even thousands of people worked in a coal mine – an oilfield needs only dozens or hundreds at most. Thanks to the liquid state of oil, workers stay on the surface to pump it. The oilman’s job is not necessarily less dangerous than the miner’s, but he is more subject to control, more visible, less autonomous. Unlike miners, oilmen rarely go on strike. Working in small teams in remote places, they can easily be replaced.

Petroleum doesn’t absorb moisture or putrefy and can be stored for decades. But it is highly inflammable, and there is always a risk of leaks, spills and fires. Safeguarding the oilfields, pipelines, storage reservoirs and refining factories is of the utmost importance. The price of oil depends not on its production cost but on its protection cost, which includes securing its extraction, transportation and distribution. Whereas in the coal economy the main player was the miner and the main threat was a strike, in the oil and gas economy the main player is the security guard and the main threat is a terrorist attack.

A third feature of oil is that it has always been found far from centres of population – in mountains or deserts, in marshlands or under the sea. This is very different from widely distributed coal, which lent itself to competitive markets that could not be monopolised. By contrast, the extremely uneven distribution of petroleum round the globe favours corporate monopolies, international cartels and, ultimately, entire states which specialise in oil production. The twentieth century was the century of oil, and it translated the geographical unevenness of oil into financial concentration and economic inequality. As the ever-growing flows of petroleum converged with ever-increasing streams of money, the states and banks of the world were more and more dependent on the state and banks of the powerful rivers of capital that had their sources in the oil wells. The abundance of oil, its uneven distribution and the addictive character of its consumption created the optimal conditions for steady economic growth – an ideal combination of the growing production and the growing prices of the chosen commodity. Oil shaped a group of ultra-rich entrepreneurs whom I call oiligarchs . Economic developments on this scale needed and supported the transformation of oil-bearing territories into petrostates . 1 I wish to emphasise this radical transformation of statehood into an oil-pumping Leviathan – a live monster which, as Marx said, converts ‘living labour with dead substance … into value big with value’.

Fountains and pipes

Every country in the world consumes oil, but very few countries extract it. Therefore most oil, unlike coal, has always been exported. Since 1859, when the first borehole was drilled, tens of thousands of oilfields have been found around the world. Few of them are commercially viable, and these productive deposits are nearly all found on the distant peripheries of the world’s empires, which shaped their borders much earlier while pursuing other resources.

Oil gives to mankind with one hand and takes away with the other. Across the countries of the planet, the correlation between consumption of oil per capita and various indicators of human development (education, life expectancy, etc.) is very high. But the correlation between the level of oil extraction and human development is negligible or negative. On average, the citizen of a ‘developed’ country consumes ten times more oil than the inhabitant of a ‘developing’ country. Much oil extraction, however, occurs in ‘developing’ countries, which supply oil to their ‘developed’ partners. This trade is huge: counted in dollars, the volume of the oil trade is ten times larger than the volume of the gold trade and much larger than the trade in any other single commodity. Globally, the presence of oil in a country doubles the likelihood of civil war and increases the likelihood of an authoritarian regime. 2

The First World War did not start because of oil, but supplies of petroleum brought about its end. In the Second World War, oil was one of the chief spoils. The Cold War redistributed oil rent from private producers to state ownership, and the big oil-producing regions in the Middle East, Africa and South America turned into trouble spots. Nowadays, most oil is extracted from deposits in state ownership: ‘conventional oil’ is mostly state oil. Paradoxically, the biggest trade on the global capitalist market has been executed not by private entrepreneurs but by states. The formation of OPEC, the cartel which owns four-fifths of the world’s oil reserves, offered a unique opportunity for creating a global trade monopoly. A combination of a monopoly on violence – a constituent feature of the modern state – with a monopoly on energy has given the members of OPEC an unprecedented power in world affairs. 3 Only their internal and mutual disagreements – the imperfect character of both monopolies – have diminished this power.

Oil is used mostly as a source of energy, and oil-fuelled vehicles have massively improved the efficiency of many human activities, from war to work to play. But oil is also the raw material for making plastic, synthetic fibre, fertiliser and much else. Out of every fifteen barrels of crude oil, one is used in the chemical industry and the rest is consumed as fuel. But finding oil, extracting it and delivering it to the consumer itself requires energy, a proportion of what is extracted. Since the beginning of the twentieth century, that proportion has risen from 1 per cent to 20 per cent. Moreover, all stages of the process give off carbon dioxide. The useful work achieved per unit of emissions has fallen by a factor of twenty. Like the production of other raw materials, oil extraction is subject to the law of diminishing returns. When oil fountains shut down, petroleum had to be pumped up from deeper and deeper wells. When the wells were exhausted, the remaining fuel had to be pressed out from its deposits by tremendously complex techniques. Then, ‘non-conventional’ sources were found such as shale and oil sand. As the quality of petroleum went down, it underwent ever more complex procedures of refining. But, as long as the prices of fuel were going up, the oil industry continued to expand.

Oil is linked to natural gas, with the huge difference that oil is liquid and gas is a gas. It is difficult to store, much more so than oil. For this reason, gas used to be traded just as if it were a perishable product. Impossible to transport by sea, gas remained an inland commodity. Traded via a fixed network of pipelines, it was sold on the basis of long-term, guaranteed contracts. This made natural gas ideal for a planned economy. Free markets preferred oil. Gas was the right fit for socialism just as oil was for capitalism. The new technologies for liquefying gas have changed these conditions, and gas has changed its political characteristics. Since liquid gas can now be stored, it can be traded as required, its price can be defined ‘on the spot’, and it is a market commodity just like coal or oil. Liquid gas is more expensive than oil but less harmful – it releases fewer emissions when burnt. This makes their futures different: the consumption of gas will rise while the consumption of oil will fall.

Farflung corners

Playing with fire, people have always been fascinated by exotic places where inflammable oil flowed out of the earth, or where they found a hissing jet of natural gas. The first oil-processing works started in a remote corner of the Austro-Hungarian Empire – in eastern Galicia. In 1854, the pharmacist Ignatius Lukashevich discovered how to use oil instead of whale blubber for lamps. Local oil was abundant – he just needed wells, but his refining workshops were quite sophisticated. However, Galicia was as remote from the consumer as Arabia or Siberia. Until the authorities brought the railway there, kerosene had nowhere to go. But labour was so cheap that even lighting local villages earned profits. Lukashevich used these profits to help finance the Polish uprising of 1863 against the Russian Empire. In 1880, Emperor Franz Joseph visited Galicia. He was probably surprised to see a problem which has plagued the oil industry ever since then: overproduction.

Accustomed to dark nights, the world enjoyed using kerosene illumination after the bloody wars of the mid-nineteenth century. The first oilmen were radical utopians. In Trinidad, there was a lake of bitumen which pirates used to caulk their ships. In the 1850s, Conrad Stollmeyer, a German from Ulm, thought up a way of producing kerosene from this bitumen. He used kerosene as lamp fuel and also burnt it, in combination with cane waste, to boil sugar sap. Stollmeyer dreamed of liberating the black workers from their toil on the plantations but succeeded only in helping the plantation owners become even richer. They lost their battles, Stollmeyer and Lukashevich, and failed to liberate toiling people. However, their inventions did save thousands of whales. 4

In 1858 an oil boom began in Pennsylvania. Benjamin Silliman, a professor of chemistry from Yale, successfully adapted coal-fuelled engines, which had previously been used for salt brine, to pump oil. Lit with smokeless lamps, American cities devoured kerosene. With extraction booming, everyone expected that the supply would run out. But there was oil aplenty, so much so that the bubble burst and prices fell. Hundreds of entrepreneurs offloaded their oilrigs, which were nearly all bought by John D. Rockefeller. By 1890 his Standard Oil Company controlled 91 per cent of American output. The journalist Ida Tarbell, whose father had been ruined by the new monopoly, took the oil baron to court. Theodore Roosevelt called her a ‘muckraker’, a label which stuck to a generation of radical journalists. Woodrow Wilson supported her – he did not like monopolies. In 1911 the Supreme Court broke Standard Oil up into thirty-four independent entities. 5

The refining of oil into lamp fuel also started on the Absheron peninsula, where the city of Baku now stands. Oil had been always collected from wells and burnt in clay lamps there. In the 1860s Vasily Kokorev, another talented entrepreneur from the Pomor community of Old Believers, took an interest in the oil of Baku. With his experience of salt production, he was the first man to use drilling technology there. In 1873 he drilled his first ‘spouter’, which reached a height of 60 metres. Working with the young chemist Dmitry Mendeleev, the future creator of the Periodic Table of Elements, Kokorev mastered the process of distilling kerosene from oil. The distilling tanks were heated over oil flames and were situated right next to the oil spouters. Every four buckets of oil produced one bucket of kerosene; the residue was poured into the sea. Fires were frequent and impossible to extinguish. Kokorev felt that the expansion of his business was limited by the system of ‘farming out’ – long-term leases on parcels of oil land. By handing out bribes in the capital, Kokorev was able to change the regulations, and Baku moved to sales by auction. The workers’ conditions remained atrocious but wages were high. Three-quarters of the workforce were migrants. In 1888 Alexander III came to Baku, following the example of Franz Joseph in Galicia. In a decade, more than half of world oil would come from Baku, but the imperial government in St Petersburg was strangely inactive. The historian Alexander Fursenko has demonstrated that the Ministry of Finance in distant St Petersburg was interested less in the proceeds from Baku oil than in state loans. 6 The competing oil barons of England and America were behind these loans as well, and the game was complex.

This corner of the empire was too remote. Transporting kerosene from Baku to St Petersburg cost twice as much as transporting it from Pennsylvania. Imposing a high tariff on American kerosene, the Russian Customs Law of 1876 evened out the price difference. Still, on their way from Baku to the capital, oak barrels of kerosene had to be carried over the mountains by oxen, then across the sea by ship, then along the Volga by barge, and then follow the way of grain across the old imperial canals (see chapter 2 ). Mendeleev lobbied for the Baku–Batumi oil pipeline, which would transfer oil refining to densely populated southern Russia, but the government preferred to build a railway, which would also have military use. The ensuing debate between oilmen and officials delayed the pipeline for decades. 7 Everyone who was anyone in oil came to Baku, and the companies of Rothschild and Rockefeller competed with the locals for access to oil. Buying up shares and parcels, giving bribes and playing politics, most of them spent decades growing the same rapacious business – the exporting of kerosene and the pouring away of the oil residue.

A family of Russian entrepreneurs of Swedish origin, the Nobels, established their first refinery in Baku in 1876. The father had been making equipment for the Russian Navy for decades, and three sons inherited his business in St Petersburg. In 1873, Robert Nobel went to the Caucasus to purchase walnut timber for a new model of rifle but spent his funds instead on buying oil parcels. By 1916, the Nobel Brothers company, Branobel, controlled a third of Russian oil and the largest private fleet in the world. They transported kerosene across the Caspian Sea on tankers – the first was named Zoroaster – and then up the Volga. 8 Working for the Nobels, the brilliant Russian engineer Vasily Shukhov was the first to use the residue left after the production of kerosene. After a trip to the International Exhibition of Arts and Manufactures in Philadelphia in 1876, he invented an injection nozzle that allowed steam engines to run on oil fuel. Thanks to his inventions, ships and locomotives in southern Russia used oil instead of coal. This was a sign of progress: nowhere else was oil used so widely.

The population of Baku – the Caucasian Eldorado – swelled thanks to the influx of people, who lived cheek by jowl and ran their ethnic businesses. The Russians and Germans operated oil derricks, the Armenians and various Europeans controlled trade, and the Muslim Azerbaijanis worked as unskilled labourers. The Russian administration, led by a Georgian governor, reined in over-energetic Armenians. Social-democratic propaganda circulated in the oilfields. A young Georgian, who went by the undercover name of Stalin, led the agitation. In December 1904, he took part in a successful strike by oil workers: dozens of rigs on Nobel’s oilfields were set on fire, and the employers agreed to a nine-hour working day. Stalin later wrote, tongue-in-cheek: ‘Thanks to the strike, a certain order was established, a certain “constitution”.’

In 1888 the young Calouste Gulbenkian, a graduate of King’s College London, arrived in Baku. He was hired by Alexander Mantashev – a flamboyant Armenian millionaire who toured his oilfields on horseback and distributed cash without dismounting; he was also celebrated for the orgies which he held all over Europe. A refugee from the Armenian massacres, Gulbenkian went on to start up his own oil companies and sell them on. Each time he founded a company – Shell, Total and others – he retained 5 per cent ownership. ‘Better to have a little piece of a big pie than a big piece of a little pie,’ he used to say. Acting as middleman, he was able to create an oil empire of his own. The title of his recent biography, like that of Jakob Fugger, includes the phrase the World’s Richest Man . 9

With the demand for oil increasing every year, Baku was booming. But in 1905 bloody conflicts broke out between the Armenians and the Azerbaijanis. Hundreds of people died every day in street fighting, the governor was killed, and thousands of families fled from the town. The events in Baku coincided with strikes by factory workers in St Petersburg – they laid the ground for the first Russian revolution. In August 1905, a spectacular fire broke out in Baku, and most of the oilfields and refineries went up in flames. The export of kerosene from Russia halved, tax receipts dwindled, and even the bread supply to the Russian capital was under threat. The pipeline to the Black Sea finally opened in 1906 – its sponsor was Alexander Mantashev, the kerosene king. The Rothschilds’ Caspian company also extended its railway to the Black Sea. It so happened that the delivery routes opened at exactly the moment when production fell dramatically – the oilfields had been largely destroyed by fire or sabotage.

The unrest in Baku continued. The oil colony was turning into the empire’s gravedigger. The Donets coal basin also saw a powerful strike that turned into an armed uprising. Sprawling, overpopulated Baku was like the mining towns of the Donbas, but the bloody chaos there was different. The miners took part in the general strike and revolution of 1905 that led to the creation of the Russian Parliament. Destructive and isolated, the Baku events were provoked largely by ethnic conflicts, local propaganda and the vicious circle of violence. But it was actually Baku rather than Moscow or the Donbas that was the cradle of Soviet power.

In 1910, Stalin escaped from northern exile and returned to Baku. A fellow Georgian, Lavrenty Beria, started a clandestine organisation in the Nobel brothers’ factory; later, Beria visited Baku many times before he became the organiser of the Soviet terror in the 1930s. The Baku riots and fires continued for years. The extraction of oil fell by a factor of four at exactly the moment when it was most needed – during the First World War. When the war ended, thousands of Armenian soldiers returned to Baku with stories of the 1915 genocide fresh in their minds. The leader of the revolution in the Caucasus was Stepan Shaumian, an Armenian who had graduated in philosophy from the University of Berlin thanks to a grant from Mantashev, and who was briefly engaged to his daughter. In June 1918, as head of the Baku Commune, Shaumian nationalised oil, distributed land to the peasants and introduced an eight-hour working day. But now Turkish troops were approaching Baku. New pogroms ensued and, outvoting Shaumian, the town council invited British troops in. They came, but soon left Baku again: the British needed oil but did not wish to quench the fires and pogroms. The Islamic army of the Caucasus occupied the town and destroyed the Armenians. Shaumian and other commissars fled but were killed on the road. 10

Meanwhile international oil prices rose. The world war turned out to be a motorised battle, and the era of cheap oil came to a definitive end. The Red Army entered Baku; among its officers were Sergey Kirov and Anastas Mikoyan, two future leaders of Soviet industrialisation. In April 1920 the Bolsheviks nationalised Baku oil. Henri Deterding, a clerk in the Dutch East India Company who became the chairman of Shell, bought up the devalued leases on the Baku oilfields: he was betting on the rapid demise of Soviet power. In the upshot he lost millions and changed tactics. In 1924, he financed a plot of Georgian nationalists to capture Baku – he even printed fake Russian roubles. When this conspiracy failed he gave millions of real money to the German Nazi Party. His rival, Gulbenkian, made better use of his capital: in 1928 he bought dozens of classical paintings from the state-owned Hermitage Museum in Leningrad. Later Andrew Mellon, another oil baron, followed suit in these massive purchases, which subsidised Soviet industrialisation by plundering the old imperial collection. 11 The best use of the Baku profits took place far away in Stockholm. In 1895, one of the Nobel brothers, Alfred, the inventor of dynamite and co-owner of the Baku oilfields, set aside the bulk of his estate to establish the Nobel Prizes. The last owner of the Nobel company, the young Emmanuel, fled Russia in 1918 and lost his assets. 12 In the meantime, another engineer who got his formative experience in Baku, Leonid Krasin, became the people’s commissar of foreign trade for the new Bolshevik government. While negotiating in the European capitals, he outplayed Rockefeller by signing a trade agreement for supplying Baku kerosene to his American competitors at a fixed price. The characters and legacies of these oil barons were very different, but many of them made terrible mistakes. Their successes depended on scientists such as Mendeleev, engineers such as Shukhov or politicians such as Krasin; their failures were their own. Still, they earned incomparably more than their hired hands. Nobody, not even the Bolsheviks, could change this – though many tried.

Germany had a lot of coal but little oil. Benefiting from the work of the chemists of the previous decade, Nazi Germany created a synthetic fuel industry. During the Second World War, it consumed as much of this coal-based fuel as oil; almost all German planes were fuelled with synthetic petrol. But it was in short supply, and petrol plants were tall and conspicuous, easy targets for enemy bombers. In the war with the Soviets, Hitler’s priority was not Moscow; as the first step, he ordered the occupation of the Donbas and the Caucasus. But his troops never reached Baku. The strange feature of oil deposits – their location on the far periphery of world empires – made it difficult to capture them by force.

For the Soviet Union, remote Baku was central. Some of the most important leaders of the country – Stalin, Beria, Krasin, Kirov, Mikoyan, and also Kamenev, Litvinov, Ordzhonikidze, Vyshinsky – cut their teeth in the chaos of Baku. One of the lessons they learnt was how to make huge profits from a piece of land not much bigger than a lottery ticket; it was quite an experience for these sons of peasants and artisans. Using their usual methods of terror and surveillance, the Soviet authorities pacified Baku. But as soon as they relaxed their grip, anti-Armenian pogroms started up again. As in 1905, ethnic riots in Baku in 1990 again preceded the attempted coup in the capital – now Moscow – in 1991.

The blood of nations

Competing with the British Royal Navy, the American Fleet made an early transition from steam power to diesel. In the First World War, the Americans supplied the allies with 80 per cent of their oil products. In the 1920s, petrol-driven cars were already replacing both the horse-drawn vehicles which had thronged American cities and the trams that ran on electricity produced from coal. At the beginning of the Second World War, oil provided a third of the energy consumed in the USA – much more than in Western Europe, the USSR or Japan. Now oil was king. Without oil there would have been no fertilisers, no tractors to cultivate wheat, and no lorries to bring it to the markets. Without oil there would have been none of the houses, cars and lawns that defined the American dream. Every new generation of weapons, with the exception of nuclear missiles, required more oil than the previous one. Up to the present day, the same holds true for each new generation of people.

In the mid-twentieth century, the USA and the USSR were the only powers that had enough oil within their borders to meet their needs. Great Britain and France had concessions in the Middle East. Germany and Japan had no access to oil, although in peacetime they could buy unlimited supplies. The end of the war brought about an energy crisis in Europe. The coal mines in the Ruhr had been destroyed. Polish coal and nearly all the European oilfields were under Soviet control. Ten per cent of the American aid provided by the Marshall Plan was oil, brought to Europe from the Middle East by American companies. Thanks to local revolutions or the global Cold War, transnational companies stepped away, reducing their share of profits. In Venezuela and the Middle East, the USA agreed to share production with the local authorities on a 50/50 basis. Coups in Mexico, Iran and Egypt led to the nationalisation of oil and a fall in extraction. But the market continued to grow, as did prices. Between 1945 and 1973 the per capita consumption of oil in the USA doubled and the number of vehicles quadrupled. The developed countries prospected for new oilfields in the North Sea and Alaska.

The Soviet dependence on oil was comparable to America’s, though the uses of oil were vastly different. Following the Baku model, the Bolshevik government understood oil as its strategic resource. It had to be split between domestic use – mainly for military-industrial purposes – and foreign trade, which could supply foreign arms, goods and services in exchange for oil. Keeping a balance between these two functions was tricky because the leading Russian and then Soviet trade partner was Germany, the enemy in both world wars. Even in 1940, right before the Nazi invasion, the USSR supplied Germany with a third of the oil that it needed. On the other hand, the domestic consumption of oil products was kept in check, though the massive industrialisation of the 1930s consumed a great deal of oil. In exchange for raw materials, German and American corporations eagerly supplied the Soviet Union with cars, lorries, tractors and whole vehicle-manufacturing plants. But, in contrast to the American practice of boosting domestic consumption by car- and home-owners, the USSR directed its supplies to wasteful, state-controlled enterprises. Public transportation was predominant, and the number of cars in private ownership minuscule. But the enthusiasm for oil was unlimited. A famous poet, Nikolai Aseev, wrote in 1935:

We are delivering oil everywhere,

Inflammable and thick …

It’s more vital to us than plants and water

In all the remote corners …

We keep on drilling, drilling, drilling

Doggedly and unflaggingly.

Motor oil, diesel fuel,

It’s like our life-blood.

It enlivens our land from its pores to its innards.

With time, we will refine oil into perfumes …

Are the oilmen not our giants,

Our true heroes? 13

The oil in Baku was running out, but the Soviet Union opened new oilfields. Remembering their early experiences, the authorities referred to these regions in Tatarstan and the Urals as ‘a second Baku’ and those in western Siberia as ‘a third Baku’. After the discovery of oil and gas in Siberia at the beginning of the 1960s, the rate of extraction increased so quickly that the supply seemed inexhaustible. As the oil historian Maria Slavkina suggests, the unexpected windfall of Siberian oil allowed the Soviet leadership first to postpone and then to bury the plans they had made for economic reform. But the law of diminishing returns applied even to a socialist country. Between 1975 and 1990, supplies of Siberian oil hardly increased, but capital investment increased fourfold and the number of oilfields tenfold. 14 But the productivity of collective farms declined even faster than that of the oilfields. In 1982, the country embarked on the Food Programme (see chapter 2 ). A massive plan to exchange oil for food made the USSR completely dependent on its Cold War opponents. New pipelines delivered oil and gas from western Siberia to Western Europe, but their crucial elements were manufactured in Germany or the USA. In the booming oilfields of Siberia, everything was in short supply – labour, equipment and provisions. Ignoring its self-imposed restrictions, Moscow brought to Siberia thousands of workers from Ukraine, Azerbaijan and Tatarstan – the former oil-rich parts of the Soviet Union – and paid them much more than they would have earned at home. Throughout the 1980s, dozens of daily charter flights brought thousands of volunteers from western Ukraine to work two-week long shifts in western Siberia, and then flew them back home for two weeks’ rest. 15 Then the oil price began to fall. By the historical standards of resource empires, the drop in price was rapid but not very steep. Many other oil-producing countries, from Norway to Venezuela, weathered the crisis. Only the USSR collapsed.

Privatisation, imported equipment and foreign expertise solved many problems with which the Soviet State Planning Committee had been wrestling for decades. But while it sold its oilfields, the new Russian state kept the entire network of pipelines in its own hands. Ironically, this decision confirmed Adam Smith’s conclusion from long ago: the most important monopoly belongs not to the producers but to the transporters. It is the carriers that are the principal obstacle to free trade. Oiligarchs realised that technology, expertise and trained personnel don’t have to be produced locally – they can be bought for a small fraction of the revenue. The great knowledge machine of the Soviet era – the Academy of Sciences, schools and universities – now turned out to be surplus to requirements. In 2004, the top leadership in the Kremlin renationalised Yukos – the biggest oil company in western Siberia.

The petrostate

Throughout the twentieth century, geologists found more and more oil and gas on the planet, identifying new reserves before the old sites ran out. Some discoveries were kept secret; others turned into symbols of corporate or national pride. The industry’s main problem was a surplus of oil, which could harm prices. 16 In 1930, a colossal oil deposit was discovered in eastern Texas; oil prices fell sharply and contributed to the Great Depression. By buying concessions all over the world, from Venezuela to Kuwait, oil companies aimed not to increase production but to limit it. In the ideal world which the oil companies were constructing for themselves, the growth in world consumption would outstrip the volume of extraction. In fact, oil prices grew more slowly than inflation. Consumption turned out to be the bottleneck in the system, and it had to grow. American culture exhibited to Europe and the world the glamour of Fordism, Hollywood, gas-guzzling automobiles, changing fashions, freeways and the charms of the suburbs. 17 Private cars supplanted public transport. Engines were ever more powerful. Everybody drove – gender equality claimed a rare victory. The commutes between home and work, home and school, work and leisure, became ever longer. Equated with modernity, the new cult of speed followed the same logic as British sugar producers of an earlier age: rebranding addictive pleasures from the arena of aristocratic consumption into enjoyment for the masses, the producers lost out on price but won on volume of trade.

In the post-war period, the countries of Western Europe competed in their American-style modernisation, which necessarily meant increasing their consumption of oil. Provided in dollars or in kind, funds from the Marshall Plan helped Europe both to buy oil from the Middle East and to purchase the American assembly lines from which finished cars would roll off to go and fill their tanks at the petrol station. All the same, the European consumption of petrol did not reach the American levels. The tax on petrol in Western Europe is about three times higher than in America and provides about 10 per cent of the revenue of Western European states. The European way of life is based on public – increasingly electric – transport; on small, fuel-efficient cars; on pedestrian zones in town centres and parks on the outskirts; and now on bicycles and electric scooters. None of this would work in most American towns, which are built for cars.

Oil gave super profits, but its production cost remained a mystery. The remoteness of the sites and the regime of secrecy engendered income streams on an unparalleled scale. All this was new: in the coal and manufacturing industries, the production costs included wages, and they were controlled by the trade unions. In 1972, the economist Maurice Edelman calculated that the cost of extracting each barrel of oil in the Middle East was less than 10 cents, and the profit was around a dollar a barrel. Since then, the figures have increased but the ratio has hardly changed. Only a monopoly or its interstate equivalent – a cartel – was capable of maintaining high prices in a growing market. Controlling about half of global supplies, OPEC coordinated both the volume of extraction and oil prices; its influence only increased after the crisis of 1973, when the price of a barrel rose fourfold.

The oil curse means that the extraction of fossil fuel puts a brake on political and economic development in a country: paradoxically, oil-rich countries are poorer and unhappier than their neighbours that do not have oil. Where does all that oily income go? Why does it not accelerate development? Why doesn’t this particular wealth bring happiness? In his research on Venezuela – the textbook example of a country ruined by oil – the anthropologist Fernando Coronil introduced the concept of the petrostate. Before the discovery of oil, the weak Venezuelan state got its rent from coffee. With oil, it found a new role as a middleman between the nation – the people and nature in their territorial unity – and foreign corporations. The latter received super profits, and Venezuela became the biggest exporter of oil in the world. The state received profits without lifting a finger. American corporations drilled for oil and exported it, Arab partners in OPEC set the rules of the game, and Cuba provided help with medical services and education – in exchange for oil. Anticipating future profits, the state borrowed still more money, which increased its revenue and exacerbated the looming crisis. The petrostate promised to transform the country – modernise it, make it rich, build factories and hospitals, create universities. None of this happened: buildings were left unfinished; diplomas were a figment of the imagination. State expenditure grew at an extraordinary rate, but the elite turned out to be incapable of managing the country. Industries rarely move closer to oilfields; in contrast to coal, it is much cheaper to send oil to the industries. The economic experiments of the Venezuelan government led to a fall in extraction, hyperinflation and economic collapse; a similar thing had happened in another socialist petrostate – the Soviet Union. Despite having the richest reserves of oil, Venezuela is importing petrol.

While nature remains the source of wealth, the state claims to be the source of progress; and of course it is the state, not nature, that expects thanks from the people. One general after another promised Venezuela peace and justice. Coups changed individual leaders, but they were not the problem. The problem was oil. Amplified by foreign debts, natural wealth turned politicians into magicians who produce ‘progress’ as the star trick of their show. On a wave of success, the state turns into a fetish object; when it fails, it becomes a curse. In oil-dependent countries, the people don’t earn money through their labour, but the state gains income from nature and shares it with the people. Haunting such states, oil is their second, sacred body, more permanent and relevant than the disposable population. 18

The Soviet Union and Venezuela are examples of the deep affinity between oil wealth and socialist teachings. Historically, these teachings were not about earning money but about its redistribution, and their practical success depended on a ready, disposable source of national income such as oil. However, socialism was born in the era of coal; fed by proletarian discipline, it reflected the life of large working collectives. Social welfare states – Weimar Germany, the America of the New Deal, some Nordic and Western European countries – were all formed in post-war periods. Their ideologies have not survived the era of oil. Again, an instructive example is the transformation of the Soviet Union, a country ruled by the party of the utopian left, into the Russian Federation, with its neoliberal economics and social conservatism. Ideologically, they are polar opposites, but most observers agree that their social and economic systems are surprisingly similar. It is the reliance on oil that secures the continuity of the petrostate. Its vital task – accumulating reserves by restraining the consumption of its own population – builds not on a socialist, neoliberal or authoritarian model but on the model of a mercantilist state of the imperial era. In this turbocharged field, ideological distinctions explain less than empirical ones, which focus on natural resources and their political qualities.

The science of curses

In contrast to the narrative world of a historian, political science is rigorous. But once they have counted up correlations and regressions, political scientists resort to metaphors, again taken from primitive religion. This is why political scientists talk about ‘the oil curse’ or – this is a minority opinion – ‘resource blessing’. What you get out of statistics depends on what you put in. In his groundbreaking article of 2001, the political scientist Michael Ross examined the data from fifty countries, from Kuwait to Kyrgyzstan, whose dependence on the export of oil and minerals made them vulnerable to the ‘rentier effect’ and the ‘resource curse’. Neither Russia nor the Soviet Union was included in these statistics. However, a book by Ross in the following decade, The Oil Curse (2012), includes a long and original chapter on Russia. 19

Globally, Ross enumerates four particular features of oil rent. It is large – the governments of petrostates are twice as big as the governments of neighbouring countries that don’t have oil. It is direct – the treasury depends mainly on income from state property and not on taxes from the citizenry. It is unstable because it depends on global oil prices that are beyond the control of any single state. And, finally, it is opaque and secretive, because it comes from the direct relationship between the state and nature, without much participation from the citizens. All this turns oil rent into the optimal means of enriching the elite. Since its main source of income, oil extraction, is not labour-intensive, the petrostate does not depend on its population. The elite justify their existence by their superb skills, magic tricks and lofty promises. The petrostate redistributes a part of its profits for the benefit of the population by building hospitals, buying food or supporting the currency. But, in as far as the beneficiaries of these blessings cannot influence them, the expenditure remains unproductive. The normative principle of democracy – no taxation without representation – doesn’t function in petrostates, because they don’t depend on taxes. Petrostates preach and practise another principle, empirical rather than normative: no representation without taxation . 20 Only oil is capable of generating income streams large enough to replace the taxation of the whole population. Earlier forms of resource dependency – silver, sugar, hemp, cotton – were partial. Pursuing its profit, the elite enslaved a part of the population, but another part remained free. With oil, the whole population is dependent on a petrostate.

Intercountry statistics show that a country’s export of oil and gas hinders its democratic development, prevents the growth of human capital, and destroys other sources of national income. Each 1 per cent increase in hydrocarbon revenue is associated with a 0.2 per cent decrease in other revenues. 21 But there are countries that have dealt with their oil more successfully than others. The main conclusion from the literature about the resource curse is that it is not necessarily fatal. Serious and concentrated effort, based on knowledge of the danger, can overcome it. The resource dependency can be seen not as a curse or predestination but, rather, as a free choice, a manifestation of political will. But this will depends on the changing conditions, prices, and much else. The higher the price of oil and the less productive the remaining part of the national economy, the more tempting is the trap of oiligarchy .

Yegor Gaidar, Russia’s deputy prime minister and minister of finances in the early 1990s, explained the very collapse of the Soviet Union by the instability of oil prices and the failure of diversification. 22 Nigeria, Iran, Libya and Venezuela are other historic examples of the oil curse. The figures speak of the flight of capital, the growth of inequality, patriarchy and inefficiency – typical features of petrostates.

Carbon and gender

Oil provides fuel and fuel gives speed – one of the core values of modern patriarchy. Ever since the invention of the assembly line, the car has been an exemplary object of male consumption. More and more workers are involved in their production, more and more cars roll off the assembly line, more and more workers buy them, they make more and more cars – and the cars burn more and more petrol.

Comparing the position of women in different Arab countries, Michael Ross has shown that women have more years of education and are more likely to have a job in countries without oil. The reason is that such countries develop other production industries – often textiles. While textile manufacturing produces less rent than oil, it allows for greater gender and class equality. All these countries are Muslim, but the difference is very significant: in some countries women make up a quarter of the workforce, in others they are less than 5 per cent. 23 According to United Nations statistics, throughout the world the extraction of mineral resources is a sector of the economy which, like the military-industrial complex, is characterised by extreme gender inequality. 24

It would be interesting to apply Ross’s comparative method to Russia vs. Ukraine, Azerbaijan vs. Armenia, or Kazakhstan vs. Kyrgyzstan. In Russia, only 1 per cent of the population is employed in the gas and oil industries, and they are mostly men. One should add the 5 per cent of the population who are employed in the security trade – guarding pipelines, protecting revenue streams and taking care of the oiligarchs and their assets. All these soldiers, watchmen and bodyguards are also men. There is also a large group of lawyers (in Russia, making up approximately 1 per cent of the population – much higher than in Germany), who are employed in resolving conflicts. Just as protection from pirates was one of the key tasks in the tobacco and sugar trade, so the work of security personnel ranks highly in oil-dependent economies. The weak point is not extraction but transportation, and especially its security. For this reason, people from the oil industry rarely become leaders in oil-extracting countries; time after time, their leaders turn out to be generals or former secret service agents – specialists in security. Since they serve the most – or even the only – viable part of the national economy, these men have the most attractive salaries and benefits. Whoever guards something, owns it. Protego ergo obligo – I protect, therefore I obligate – is how Carl Schmitt formulated this fundamental truth of political philosophy, the extractive counterpart of Cogito ergo sum . 25

Oil business traditions and security requirements create that extreme gender inequality which many observers of Russia notice there. To reflect the economic, gender and psychological traits of this human type, I call him petromacho . These men – the roughly 7 per cent of the population who extract, transport and protect oil and gas – secure more than half of the Russian Federation’s budget. Two classes of citizen emerge – the privileged all-male minority which extracts, protects and trades a valuable resource and all the rest who depend on the redistribution of income from this trade. In its ideal form, such a country would turn into a gas and oil corporation, which bears responsibility only for the trade of fossil fuel. However, the presence of a population complicates this scheme. For a state living off the export of oil, its own population is superfluous to its purposes. But two-thirds of the gas and a quarter of the oil extracted in Russia are used for domestic consumption; diverting a valuable resource from the foreign market, this is a burden that the government is trying to reduce. The fact that the population is superfluous doesn’t mean that people must suffer or die. The state will take care of them but only in a way that suits the government. Instead of being a source of national wealth, the population turns into an object of state charity.

Addictive monopolies lead to inequality. Sustaining these levels of inequality is more difficult for petrostates with a large population, such as Russia, Nigeria, Indonesia, Venezuela and, until recently, Mexico. Again, Russia is typical: according to the statistics for 2018, the 1 per cent of the population who are employed in oil and gas extraction provided about half of the state budget, though the actual numbers are even higher. Income from oil is enormous, but it is not enough for the twin tasks of meeting the demands of the elite and supporting the population. The aim of authoritarian regimes is to balance these tasks, which is easy during a time of growth and difficult in a slump. Dependency on oil is often compared with addiction, making an analogy between a sluggish economy which causes millions to suffer and an individual pathology. In 2006, President George W. Bush said: ‘America is addicted to oil.’ In Russia, critics talk of the ‘oil needle’ on which the country is mainlining. The governments of post-Soviet Russia have repeatedly announced programmes for diversification and modernisation. But this large country with weak democratic traditions has found it impossible to self-medicate.

In the petrostate, men and women depend not on their labour but on the charity dispensed by the elite. Both sides rely on external forces, and they bargain not among themselves but with someone else. God, nature, chance, or some other power arranged things so that oil is connected with religion. The Islamic countries own 62 per cent of the world’s oil reserves and export more than half of global oil. Another 5 per cent of reserves belong to countries with an Orthodox Christian population. 26 There is also a link with ideology: a quarter of extracted oil is concentrated in three post-socialist countries – Russia, Venezuela and Kazakhstan. Only a religious or nationalist language can explain the fateful chance that endowed some countries with an abundance of resources and gave none at all to others. Unable to understand the source of their blessing but feeling that they are exceptional, the oil-rich elites have reworked the ideology of the chosen people, combining mysticism and nationalism, arrogance and cupidity. Resource nationalism helps an elite to distinguish between its own people who receive the state’s charity and aliens who must not receive it. For the elite, their charity confirms their self-awareness as chosen people. For the population, it turns citizens into paupers and migrants into nonentities. This is a vicious circle of evil.

The oil standard

Defying the long-term trend, the price of oil and almost all other natural resources significantly increased at the start of this century. When these prices peaked in 2014, the total value of shares included in the energy sector on the New York Stock Exchange (nearly $2 trillion) approached the total value of shares in the financial sector (just over $2 trillion). Since then much has changed, but the world still obtains almost all its energy by burning fuel and polluting the atmosphere. Lying in the ground like assets in the bank, fossil carbon defines the value of national currencies and the size of state budgets. Petrodollars, gas roubles, coal zloties and other carbon currencies circulate in the global market, setting prices of labour, education, health care and life itself. The price of a barrel of oil is the main index of the world economy – a more important indicator than the price of gold, which obediently tracks the price of oil. The gold standard was abolished decades ago – perhaps it would make sense nowadays to talk about the ‘oil standard’?

As Karl Polanyi showed, the gold standard was a key to the fabled stability of Europe in the nineteenth century. ‘Where Ricardo and Marx were at one, the nineteenth century knew not doubt,’ he wrote. 27 But Germany abandoned the gold standard during the First World War, and Great Britain and the USA left it during the Great Depression. In 1944, the Bretton Woods Agreement established fixed exchange rates between the dollar and the other currencies of the allied nations. Marketed almost completely in dollars, oil had already become the most important commodity in international trade. The dollar would remain fixed to gold, but the price of oil – the exchange rate of a barrel of oil against an ounce of gold – was floating. The USSR was a signatory to this agreement; the preservation of the gold standard was advantageous for a state that extracted gold and oil. The Bretton Woods Agreement had been worked out in discussion between the British representative, John Maynard Keynes, and a senior US Treasury official, Harry Dexter White, who, it emerged later, was a Soviet agent. Together, they proposed to create, along with the World Bank and the International Monetary Fund, a third global organisation which would answer for the world supply of strategic resources – oil, rubber, metals, etc. This interstate corporation would have stored raw materials in depots, smoothing price hikes and supplying raw materials according to national quotas. Clearly, this system would be beneficial for the resource producers – this project was like something dreamt up by the Soviet State Planning Committee. However, even the founders of the neoliberal movement approved of it. Friedrich Hayek, for one, proposed changing the gold standard to an ‘international commodity reserve currency’. 28 National currencies would have been pegged to a basket of ‘standard storable raw materials’, including petroleum. Sketches of a similar index have been preserved in Keynes’s papers. 29 When Keynes and Hayek were at one, the twentieth century ‘knew not doubt’. In August 1944, the USA and Great Britain agreed to found an international oil council – an early, broad and more powerful version of OPEC. Judging by the proactive position taken by White, his Soviet masters were also keen on this project.

The idea did not have legs, and it is important to understand why. The price of a barrel in dollars signifies the amount of goods and services which can be exchanged for it: the higher the price of oil, the cheaper labour and labour-intensive goods. Essentially, the price of a barrel is the ratio between oil and the economy. Oil fluctuates but wages are relatively stable, and this is why the long-term chart of oil prices looks as jagged as a broken saw. Pegging the dollar to a barrel would lead to instability of wages. If the gold standard were to be replaced by the oil standard and national currencies were to be backed by barrels of oil, prices of labour, services and real estate would fluctuate wildly.

In 1971, President Nixon suspended the convertibility of the dollar to gold. If he had not done this, the fourfold increase in the price of oil in 1973 would have led to a banking crisis: there was simply not enough gold to match such a growth in the money supply. Since then the dollar has floated in relation to other currencies. If general inflation is taken into account, the price of gold has increased more than the price of oil because the supply of gold has grown more slowly than the supply of oil. But the price of oil is more volatile than the price of gold. In peacetime these prices fluctuate in tandem; in times of war or crisis they diverge. The neoliberal economy, which reigned supreme thanks to the victory of oil over coal, thrived only when oil prices grew smoothly. Perhaps an oil standard would work as a regulated process of predictable growth rather than as a price equivalent like the gold standard. ‘Stabilisation of the markets’ was the official goal of OPEC.

Founded in 1960 by Arab nations, Iran and Venezuela, this cartel now includes fifteen countries, which control 44 per cent of global oil extraction. A few other countries such as Russia and Norway attend OPEC meetings as observers. The USA is an unofficial but influential observer. Paradoxically, the price of the most traded commodity of global capitalism is not set by the market but depends on agreements among the members of OPEC. The American disposition towards free trade did not prevent it from approving the formation of OPEC. John F. Kennedy’s administration hoped that making an agreement with a state cartel would be easier than with transnational corporations. But during the Arab–Israeli war in October 1973, OPEC announced an embargo on supplying oil to the USA, and prices soared. Like Rockefeller a century before, OPEC did not deliver the stability of oil prices that justified its monopoly. In June 1974 the secretary of the US Treasury, William Simon, signed an agreement with Saudi Arabia: the Americans agreed to a new price level on condition that the Saudis would invest petrodollars in American Treasury bonds. 30 OPEC established the price of a barrel an order of magnitude higher than its production cost; this defined the price of fuel in petrol stations all over the world; consumers paid this price because they had no alternative; the profits were shared between the owners of the petrol stations and the exporters of oil; and the latter bought US Treasury bonds, which lowered bank rates, gave relief to business and created bubbles on the property market. Sucking money out of domestic economies, including that of the USA, and directing it into the biggest treasury on earth, this was a mercantile pump of the highest level.

The banks and stock markets need a globally shared fiction, an analogue for the gold standard. The price of a barrel is as fluid as oil itself, but it has strong backing. Geologists took care of the fact that, for every barrel of oil consumed, another two were added to the ‘proven reserves’ of the planet. The replacement of solid, limited gold with flowing, growing oil added a shot of dynamism to the neoliberal world view. But oil prices fluctuated wildly, as Keynes had predicted they would. Post-war governments limited this volatility either by establishing ‘price corridors’ or by creating national reserves. The first method usually failed to work; the second led, for example, to the creation of the Strategic Petroleum Reserve, giant oil-storage facilities in salt mines in Louisiana and Texas. Oil has been stored there since 1975; now this reserve has so much oil that it would take six months to take it all out if ever the need arose. The creation of this giant storage system coincided with the widely circulated idea of ‘peak oil’. A sort of resource panic, it was articulated by the American geologist Marion King Hubbert. Repeating Jevons’s fallacy, Hubbert wrote in 1948 that oil would soon run out; his forecast was that oil extraction would reach its peak in 1970 and then fall because of depletion, rising costs and diminishing returns. People discussed this prediction in 1973, when the price of oil rocketed for quite different reasons. 31 In response to the American oil reserve, the Soviet Union created massive underground storage facilities for natural gas; ironically, they all happened to be on the territory of Ukraine and now belong to Russia’s rival.

Since the 1970s, there has been no decade that has not seen the price of oil changing by a factor of two, or even five in some decades. No ‘stabilisation of the markets’ was achieved. Instead, we have been moving from one crisis to another – military, financial, political, ecological and epidemiological. If the gold standard was a successful but temporary measure, the oil standard was a non-starter. The majority of fossil resources will never be used. In 2015, British Petroleum released a forecast according to which only a third of proven stocks of oil, gas and coal will ever be extracted and used. If more carbon is burnt it will lead to a rise in average temperature of more than 2º Celsius, and this will be fatal for civilisation as we know it. Since then, the growth of proven energy reserves and the decline of realistic energy needs have decoupled still further. As long as the capitalisation of oil majors depends on their reserves, this decoupling means huge financial losses. American shale has added new volumes of oil, and this oil has a different, non-conventional dynamic: more resilient to price changes, shale oil acts as a shock absorber for the oil market. 32 But for any absorber there is a shock that it cannot withstand. The year 2020 saw the collapse of oil consumption and the inability of the Russian and Saudi producers to agree on supporting the oil price. It also saw a renewed commitment from the European countries to the ‘green recovery’. The consequences of the pandemic have meant that the price of oil has lost its informative value. Decoupled from the global economy, the price of a barrel will continue fluctuating, but its unpredictable moves will make decreasing impacts on the markets. In 2020, Germany was already producing the major part of its energy from renewable sources. Many other European countries have also set the dates for their ‘carbon neutrality’, which largely means a ban on burning coal and oil.

The English and the German language both use the idiom ‘so-and-so is stinking rich’. Taking an example from folklore, Sigmund Freud wrote: ‘The gold which the devil gives his paramours turns into excrement after his departure.’ 33 The kinship of wealth and shit becomes more evident with every shift of the resource platform.

The Russian disease

In 1977, The Economist coined the expression ‘Dutch disease’ to describe the unexpected events which ensued in the Netherlands after a large natural gas field was discovered in the North Sea, off the coast of Groningen. The strengthening of the national currency led to unemployment, inflation and emigration. As had happened many times in the past, profits from a raw material devalued workers’ wages. But Holland, Norway and some other ‘developed’ countries found a way to deal with the resource curse. A popular remedy is ‘sovereign funds’ – state-owned financial institutions which have the task of ‘sterilising’ petrodollars, removing them from circulation and accumulating money ‘for future generations’. In contrast to the utilitarian economics of the ‘welfare state’, which encouraged consumption, ‘sterilising funds’ have the mercantile goal of restraining domestic spending. Like the gold reserves of the past, these funds save petrodollars for the unspecified future. The difference is that the autocratic ruler had complete control over his treasury, while the spending of sovereign funds is conditional on a host of rules and procedures. To meet them, countries need ‘good institutions’ – a powerful parliament, an independent judiciary, a free press. This formulation, ‘good institutions’, belongs to economists – a historian would not dare to use it.

Norway has trillions of dollars in its Sovereign Fund, and they all came from oil and gas. The government can spend no more than 3 per cent of the fund’s annual returns on pensions and other needs; any other expenditure must be approved by a full vote of Parliament. The fund sold all its shares in tobacco companies, recently got rid of coal companies, and has promised to sell its oil shares. But Norwegian corporations are working flat out, pumping fuel from the seabed, selling it, expanding production and paying wages to its workers. Most of the energy that Norway uses domestically comes from its hydroelectric plants. The overall result is that foreign consumers burn Norwegian oil and gas, polluting our common atmosphere and bringing no benefits to the country’s citizens. But since the nation locks up its resource income, the citizens rely only on their labour – and they are doing well. Norway’s previous experience as a resource economy helped it to reach this unorthodox solution. Two hundred years ago, Norway was a poor country and dependent colony; the sources of its income – fish, timber, grain – were diffused and not susceptible to monopoly. Is the decisive role in development played by pre-existing resources rather than by pre-existing institutions, as political commentators think? And would it not be better if oil simply remained in the earth rather than polluting the planet, and then keeping people busy ‘sterilising’ its profits?

The history of economic thought did not foresee anything like the ‘sterilisation’ of huge streams of income, which are comparable in value with national revenue. The classical economists could never have imagined that the crucial question of the new era would be exactly the opposite of theirs: how to take wealth out of the economy? Since this extra wealth has already been created, would not it be better to share it out equally among all citizens? This is how a similar fund in Alaska works – it pays out an annual dividend to all Alaska residents. Calculated through a transparent formula, the amount fluctuates between $1,000 and $2,000 a year. Created in 1977, the fund has a lot of experience and little bureaucracy. In Russia, the Stabilisation Fund was created in 2004 following the Norwegian model. Its aims were similar – the sterilisation of the income from gas and oil. However, the Russian fund lacked stability, and sterility too. The fund was divided up, merged and restructured several times; no institution in the Russian Federation has been renamed so often. It pays out money under the supervision of the president and the government; calculated in dollars, the fund has seriously shrunk in recent years. There are similar funds in other oil-extracting countries, from the Arab Emirates to Venezuela.

As economists say, it all depends on the institutions, though, I would add, in radically different ways. In the countries with ‘bad institutions’ – in Russia, Iran, Venezuela, Nigeria, Libya – we see the vicious circle of resource dependency. Extracting raw materials and failing to sterilise their rents, these societies are devaluing their human capital. Undermining their institutions, they depend still more on their resources. Going from one crisis to another, such societies pollute the natural and the human environment. The result is demodernisation – the loss of previously attained levels of education and equality, a creeping paralysis of society, and arbitrary activity by the state. 34 With its resource wealth, uncertain property rights, political authoritarianism and record levels of inequality, Russia is the model of ‘bad institutions’. If the combination of resource dependency with good (or just about acceptable) institutions is called the Dutch disease, let’s agree to call resource dependency in combination with bad institutions the Russian disease.

Following the price of a barrel, the role of gas and oil in the Russian economy changes every year. In 2013, the extraction of oil and gas made up 11 per cent of the GDP of the Russian Federation, while their sales abroad made up two-thirds of export revenue and half of the state budget. But these are only the direct receipts from foreign trade; a large share of the oil and gas is consumed within the country, often at subsidised prices. To estimate the rent that the state receives from the sale of energy, one needs to multiply the volumes of gas and oil sold inside the country by world prices. Such a calculation gives a figure in the order of a third of GDP. This income increases still more due to internal expenses and subsidies: for example, when the state uses the money made on oil to pay wages or supply fuel to agricultural enterprises, it then skims off a portion from them which returns to the exchequer in the form of taxes. But these taxes are laundered oil revenue. Heavy and military industries, metal factories and railways all get electricity (or gas that is burnt to produce electricity) at subsidised prices. These subsidies alone make up 5 per cent of GDP. Agriculture receives fuel at discounted prices and exports grain at global prices: this is how oil income proliferates. Even more important is the fact that the Russian currency, the rouble, is relatively stable only on account of the export of oil and gas; it is just impossible to imagine a convertible rouble without this export. 35 A stable currency is a public good, and the state has taken responsibility for it. Billions of the dollars and euros received from the sale of oil and gas are spent on this task. But in 2020 the Russian rouble fell by more than a fifth against the euro. The Marxist historian Mikhail Pokrovsky, working in the 1920s, noted that, the higher the global grain prices were, the more aggressive the politics of the Russian Empire. The rise in the export of wheat paved the way for the Crimean War. 36 The same logic was repeated in the twenty-first century, again in connection with Crimea. The higher the price of oil, the more aggressive the words and deeds of the Russian authorities. And, conversely, when prices fall, the authorities relax.

Discussing the Russian economy, the American academics Clifford Gaddy and Barry Ickes compare the petrostate to an inverted funnel. 37 Energy and capital enter it through the narrow neck; as the funnel widens, industries use them to manufacture arms, pipes, tractors or railways; the workers in these sectors receive wages, which they spend on services and consumer goods that form the widest part of the funnel. Taxes from these transactions finance the security services: energy streams have to be defended, conflicts resolved, property protected. The leftovers go into ‘the social sphere’ – schools, hospitals, pensions. Inefficiency, corruption and tax evasion divert a portion of these revenue streams into a subsidy for the elite. The funnel is a resonant image, but I would rather compare the resource state to the human body, with its two distinctive loops of circulation – the pulmonary circuit that oxygenates the blood and the large systemic circuit that feeds the rest of the body. In the smaller circuit, which passes through a network of boreholes, pipelines and export operations, arterial blood gets charged with fresh and convertible capital. Through the large circuit, this oxygen reaches all other organs and limbs, stagnating in the capillaries, clogging veins, settling in the walls of moribund vessels. The two circuits meet in the heart, and its valves determine how much will be delivered to the humble periphery of the system.

The carbon standard

From the ecological perspective, the oil price must be high – it restrains the consumption of fuel, cuts down emissions and allows for the development of alternative sources of energy. From the political perspective, however, the high price of a barrel finances the authoritarian petrostates, providing them with new opportunities to kindle wars, spread inequality and increase emissions. Ecology, politics and economics always disagree, but now is the moment to call them to order, and this new order will be clearly dominated by ecology. It is helpful to remember that ecology and economics both come from the same Greek root that means ‘household’.

On the global scale, the era of high prices led to the diversification of supply. New sources of energy are always more expensive than the old ones, but people prefer them for non-economic reasons. Solar panels and wind farms produce electricity increasingly cheaply, but the distribution and storage of this energy require rare and expensive metals and other materials. Bituminous sand remains expensive and its processing is harmful to the environment. Shale oil has better prospects: regardless of automation, its extraction is labour-intensive and requires local knowledge. Unlike boreholes, which are as difficult to cap as it was hard to stop a waterwheel, hydraulic fracturing works on demand. Extraction is diffused – maps of shale oil extraction look more like the widely spaced clusters in which coal mines were grouped than the topical structures characteristic of oilfields. And, finally, American sites of shale oil remain in private hands. The extraction of coal from open pit mines makes it similar to traditional oil; the extraction of energy from shale marks a return, on a new technological level, to the political economy of the coal mines. Liquefying gas emancipates its trading from the pipelines which were so attractive to planned economies. Do these new technologies revise or even reverse the Mitchell thesis?

In different eras of history, land, gold and oil played the roles of the universal equivalents of exchange value. This role will soon be played by carbon. The air belongs to everyone; those who are the biggest polluters should pay the highest prices, and only the state can collect these payments. As climate catastrophe approaches, energy policy – prices, taxes, subsidies, phases and goals – will become an increasingly important mechanism for regulating emissions. So far, carbon emissions have grown in tandem with the production and consumption of energy; but it is the emissions, rather than demand or supply, that should be limited in the first place. This approach makes emissions a major factor of regulation. Ricardo’s classical economics posits three factors of production – land, labour and capital (it assumes that every raw material is connected with land). Carbon emissions make up a fourth factor, independent of the three classic ones. Labour is inexhaustible, capital is relational, and only land is finite; but now we realise that the atmosphere will expire first. Any business plan should take emissions into account and pay for them in the same way that businesses pay for using land, labour and capital. As people switch from ancient accounting traditions, based on the value of fertile land, to new practices which add in the cost of clear skies, the relations between the rich and the poor will also change. The first step is to eliminate the tax privileges that the producers of fossil fuels – and thus of carbon emissions – still enjoy today; in the USA alone this will yield $1.5 trillion, which can be spent on the Green New Deal. A carbon standard would be a more radical measure: the price of any goods or services would be defined by the emissions which their production creates. A distant heir of the gold standard, the carbon standard would not change the market economy too radically: the consumer price of our goods and services already correlates with their energy cost. All the same, introducing a single principle which will link any act of economic exchange with its contribution to the salvation or the destruction of the planet would be pivotal. Every act of work or exchange would find the meaning and justification which they have lost since the dawn of time.

Oil into food

As we saw, John Maynard Keynes predicted that the population growth in America and Russia would prevent grain supplies to Europe, threatening the old continent with hunger. 38 This didn’t happen. Innovations made by chemists, engineers and plant breeders have resulted in grain that is no longer a product of earth, sun and labour, as it was in the time of Malthus: barrels of fossil fuel go into the production of every ton of grain. Arable farming and cattle breeding have become branches of petrofarming – the conversion of oil into food with a little help from earth, sun and labour.

Petrofarming uses two methods of oil conversion, physical and financial. Fertilisers are made from natural gas. Machinery runs on oil products. Together, they have substantially increased agricultural productivity. At the beginning of the nineteenth century in England, it took one calorie of energy to produce a dozen food calories. At the beginning of the twenty-first century, for every food calorie produced, two fuel calories were expended. But the financial conversion is happening on an even larger scale. Using agricultural subsidies, nations of the northern hemisphere redistribute capital between industry and agriculture, between the south and the north and, ultimately, between oil and food. Agricultural subsidy is one of the leading budget expenditures of individual countries and also of the EU. On top of that, various member countries subsidise the purchase price of grain and other staples. All this aid comes to over €100 billion. Other developed countries and China also spend enormous sums, comparable to their defence budgets, on agricultural subsidies. In every country, a big part of this financial flow comes from taxes on oil companies, fuel stations and car drivers, as well as from value-added tax on energy-intensive goods and services. Altogether, this is a much larger, and less clearly defined, area of taxation than would be the case with a straightforward emissions tax. In the current price system, grain and food products are globally underpriced, while oil and fuel products are globally overpriced. The explanation for this disbalance is the ability of the owners of topical resources, such as oil, to dictate monopolist or cartel prices on their production, together with the competition between dispersed food producers, who set their prices much closer to production costs. Land, grain and related products, such as meat, are some of the most widespread of natural resources. There is fierce competition in this diffused market, the opportunities for monopolies are minimal and the prices for these products are close to market prices. Unable to correct such distortions by market mechanisms, the states redistribute the revenue from the monopoly sectors to the competitive markets – from oil to food.

Malthus wrote that the exchange between town and country was the largest market in history as it was known then. Now this exchange has become the source of the largest distortions in the market. With all the new chemical, genetic and financial technologies, land, labour and even capital have ceased to be limiting factors of production. The limits are set by methane and carbon emissions; global agriculture makes a massive contribution to them – up to a quarter, globally. This figure exceeds the carbon emissions from transportation or any single industry. Still another factor is agriculture’s role in the deforestation of the planet, which also contributes to global warming: fields and pastures produce less oxygen than forests and capture less carbon. Carbon emissions echo the classical ‘tragedy of the commons’. No individual looks after what is commonly owned, and we still regard the earth’s atmosphere in the way that Stone Age man regarded land – as an infinite resource. But the solution found then – the privatisation of land, starting with all the best bits – won’t work for the atmosphere.

Much has changed since the ‘sect’ of physiocrats defined the fashions in Versailles. President Macron’s project of raising ‘eco-taxes’ in 2018 led to mass protests, and the government was forced to abandon this measure. The problem was a lack of trust. If the revenue collected from the new tax had honestly been spent on environmental projects, the result might have been different. The agricultural sector of the world economy has received surprisingly little critical attention – less than defence or oil, which are similar in size. Globally, subsidies go mainly to the large-scale and energy-intensive staples – wheat, soya beans, cotton; in Europe, they also support small-scale and traditional forms of agriculture. Everywhere, disproportionate amounts of subsidy go to cattle farming; in the USA the proportion is estimated at 63 per cent. The official goal of the gigantic Chinese subsidies is to shift the balance of agricultural production from grain to soya, which is used mainly as cattle fodder. The benefits of subsidies are not at all clear; the harm they cause is all too obvious. They distort prices, increase emissions, and exacerbate all kinds of inequality. By artificially lowering the price of food, subsidies deprive poor countries of their revenue. They support big farms and impede urbanisation, but their function is not to make farmers more equal. Subsidies selectively encourage those sectors of agriculture which are the most harmful for the environment, especially cattle farming. Repeating the failure of the Soviet Union (see chapter 2 ), this is the food programme on a world scale.

Destroying society

Because of oil and gas, a positive trade balance has been characteristic of the post-Soviet period. Every year, the country has exported an average of 10 per cent more than it has imported, and over eighteen years that gives more than 200 per cent of cumulative growth. But, strangely, domestic assets – state-owned and private – have hardly grown. The reason is the flight of capital. 39 The offshore wealth of Russian officials, oiligarchs and their entourage is close to $1 trillion. Placed abroad, this wealth equals all the financial assets kept within Russia’s borders. In other words, all its economically active agents – the government, corporations and citizens – keep half of their capital abroad and half inside the country. According to the total estimate given by Thomas Piketty, 1 per cent of Russians control a quarter of the national income. This means that inequality in Russia is the same as in the USA, higher than in France and almost double that in China. Russia has more billionaires relative to the size of its economy than any other large country. Year after year, the richest British subjects turn out to be Russian. Furthermore, regional inequalities within the Russian Federation are much higher than in the United States or any European country. 40

Why did the ‘liberal’ governments of the 1990s and 2000s do so little to redistribute the income from oil and gas to benefit the population and the environment of their country? Their logic reproduced not the liberal but the mercantilist tradition. The export of raw materials, the restraint on domestic consumption, the growth of gold reserves and the enrichment of the trusted elite – these are mercantilist policies. Their theoretical grounds can be found in Britain’s ‘old colonial theory’ of the eighteenth century. The speeches of the most influential of post-Soviet economists, Yegor Gaidar, articulated his deep mistrust of the Russian population – unqualified, unproductive and, in a word, indolent. In contrast, he hoped that investing in the elite – boosting the salaries of bureaucrats and judges or letting new oligarchs grow their capital – would stop corruption and improve the quality of management. In this world view, the people weren’t ready for reform but the elite was, and petrodollars were distributed according to readiness.

When the price of oil increases, the value of labour decreases. Discontent grows, but the oilmen don’t strike; the political ideas from the era of coal do not work in the era of oil. The rich become richer, the poor poorer, the elite dumber. New social theories compare modern life to a fossil resource but do not suggest how to change it. Zygmunt Bauman’s idea of ‘liquid modernity’ plays with the oily idea of liquidity. The actor-network theory of Bruno Latour results in diagrams that resemble gas pipelines. Having stabilised and subsidised neoliberal states throughout the world, oil has, eventually, been excluded from their privatisation policies: selling other businesses, they have not touched the oil sector. On the contrary, in the 2000s a new wave of nationalisation swept through Venezuela, Bolivia, Ecuador and Russia, bringing oil-extracting companies under state control. Huge price fluctuations enriched some speculators, impoverished others and boosted the financialisation of the market. Inequality of all sorts – between countries, classes, genders and cohorts – increased even further.

What is the moral justification for inequality? A good worker should live well, so that he’ll work even harder. But the problem is deeper. Adam Smith hoped that, although any individual’s action could lead to evil, myriads of their transactions would bring good. John Maynard Keynes believed that the concentration of wealth enables massive investment in ‘fixed capital’, or infrastructure. The railways would not have been built, wrote Keynes, if capital had been equally distributed. 41 In 1971, the Harvard philosopher John Rawls formulated two principles of justice. It is fine if the rich become even richer, in accordance with Rawls’s first principle, only if the poor become less poor in accordance with his second. Since the era of Rawls and Reagan, the total effect has been known as the trickle-down economy. 42 Working with the World Bank, Branko Milanović has demonstrated that the differences between countries, and not the differences within a country, are the main culprit in global inequality. 43 Different nations redistribute capital by subsidising farms, financing health services and encouraging the trickle-down; but redistributing capital among states would require a world government. Monopoly is another issue for moral philosophy. If entrepreneurs want a moral justification, their business should not be founded on stolen property or monopoly trade. We saw that Jakob Fugger, for example, extracted untold wealth thanks to resource monopolies. Luther gave his blessings to merchants and even bankers, but threatened Fugger with hellfire. Smith’s ‘invisible hand’ also left monopolies and cartels behind. Bentham cursed them as a road to slavery. But resource monopolies are still a big part of modern capitalism.

Rawls’s former student Leif Wenar draws a parallel between the oil trade and the buying up of stolen goods. 44 Almost every country in the world, says Wenar, has a constitutional norm according to which the underground resources belong to the people. Voltaire made fun of this idea: it was Pangloss who taught Candide that ‘the goods of this world are common to all men, and that everyone has an equal right to the enjoyment of them.’ In fact, more than half of global oil has been extracted by authoritarian countries which do not ask their people’s consent to this extraction. Such oil is stolen, says Wenar, and all the norms relating to the trade in stolen goods are applicable to the case. Wenar sees in the oil trade an analogy with the slave trade: that struggle was long, but the abolitionists won it. He proposes that global organisations should stop buying oil from any government that does not conform to the minimum criteria of democratic accountability to its own people. It is easy to compile a black list of these countries – what is more difficult is to imagine an international institution which could implement such a law. The power of the consumer is well tested by civil associations such as Fairtrade. But while consumer pressure brought about change in coffee and banana plantations, establishing a similar control over petrostates has yet to be achieved. The difference comes from the way in which the outputs of different farms are mixed in the final product: an addicted consumer can easily reject a particular brand in favour of another one, but if all brands are mixed up he has to reject the commodity as a whole. This is the difference between branded commodities, such as fruits, tobacco and coffee, and sorted commodities, such as sugar, cotton and oil. Decisive for the former, the power of the consumer does not spread to the latter.

Capital gives better returns than labour. The value of inherited wealth grows quicker than the level of pay. The owners of processing industries get rich quicker than landowners or the best of hired workers. These are all reasons for growing inequality. Sacrificing millions of people, wars and revolutions are the most powerful factors enabling equality, while oil-based capitalism boosts inequality. Let’s look at a trade between two states, one resource-dependent and the other labour-dependent. This is a typical situation in the field of international relations – a game for two players, one of whom sells a precious resource which the other buys, exchanging it for goods produced by the labour of its people. The labour-dependent state encourages internal competition, protects property rights, secures technical progress, and promotes public goods and services. None of this occurs in a resource-dependent state and its monopolies. In such a country, institutions don’t develop, nature is degraded, and the people fail to thrive. All this is a curse for a resource-dependent country but a blessing for its partner. Since the rulers of resource states do not guarantee property rights in their countries, they cannot rely on their own capital or hand it down to their children. Along with their subjects, the rulers also suffer from the absence of public goods such as fair justice or clean air. Their spouses need private goods which only labour-dependent states are capable of offering. Children need the high-quality education which is available only on the other side of the border. Parents need good doctors and hospitals. But while textiles or gadgets come from abroad, safe parks, clean beaches, or good schools and clinics are not available to import. So the next step ensues: the elite from a resource-dependent state keeps bank deposits in a labour-dependent state. This is where the elite settles its disputes, buys houses, establishes its families. Exported capital – a converted form of oil and gas – turns into a bank account in Switzerland, a château in France, a business in Germany, or shares in American corporations. This capital, significant by any standards, is profitable to the recipient. The Swiss bank gets a percentage, London property prices rocket, new businesses pay taxes in the host countries. This wealth trickles down, but those who benefit from it are very far away from the places where it was pumped or mined. Paradoxically, the resource-holding elite invests in the same institutions abroad that it ignores, or even destroys, at home: the judiciary, universities, parks. In a dual economy of the post-Soviet type, Rawls’s first principle is realised at one end of the earth, but his second at another. The wealth is created in one country and trickles down in a different country. The blessings for some do not balance the curses for many others: the sum of happiness declines and inequality grows.

This many-layered dynamic is wittily captured in the music video ‘I love oil’ by the Russian rock group Smash and Vengerov (2013). In the opening scene a Russian oiligarch clumps into a glitzy bedroom carrying a barrel of oil, which he presents to his delighted wife and kids. Cut to a fashionable Italian shoe shop, and we see the same woman buying a new pair of high heels. To pay for her purchase, she tips up her handbag, and viscous black oil gushes out into the grateful hands of the shop assistant. ‘While there’s oil in Russia, I’ll be in Milan,’ sings the young woman. Her glamorous social set parties in oil, swims in oil and drinks oil, while a gang of pantomime villains steals sacks of oil in a bank heist. ‘I love Russia, I love oil,’ sings the girl. ‘I am this oil, I am this gas,’ her partner sings back to her. Addicted to oil, carrying this fetish in their handbags and worshipping it in their bedrooms, these people still need the products of labour – houses, cars, clothes, and also just laws and clean air – which they prefer to obtain in Italy. In the final and prophetic scene, the former oiligarch , now a homeless beggar, pours a hatful of useless oil over his head.

Notes

1 Coronil, The Magical State ; Ross, The Oil Curse ; Gaidar, Gibel’ imperii ; Di Muzio, Carbon Capitalism ; Badia-Miró et al., Natural Resources and Economic Growth ; Mitchell, Carbon Democracy ; Bridge and Le Billon, Oil ; Kallis and Sager, ‘Oil and the economy’. 2 Mitchell, Carbon Democracy ; Bridge and Le Billon, Oil ; Backus and Crucini, Oil Prices and the Terms of Trade ; Kallis and Sager, ‘Oil and the economy’. 3 Claes and Garavini, Handbook of OPEC and the Global Energy Order . 4 Frank, Oil Empire ; Hughes, Energy without Conscience . 5 Brady, Ida Tarbell . 6 Fursenko, Neftianye voijny . 7 McKay, ‘Baku oil and Transcaucasian pipelines’; Barry, Material Politics ; Blau and Rupnik, Baku . 8 Tolf, The Russian Rockefellers . 9 Conlin, Mr Five Per Cent . 10 Gokay, ‘The battle for Baku’; Suny, The Baku Commune . 11 Odom and Salmond, Treasures into Tractors ; Heymann, ‘Oil in Soviet-Western relations in the interwar years’. 12 Tolf, The Russian Rockefellers . 13 Aseev, ‘Pesnia o nefti’. 14 Slavkina, Rossiiskaia dobycha . 15 Etkind et al., ‘Ukrainian labour and Siberian oil in the late Soviet Empire’. 16 Mitchell, Carbon Democracy . 17 Ross, Fast Cars, Clean Bodies . 18 Coronil, The Magical State . 19 Ross, ‘Does oil hinder democracy?’; Ross, The Oil Curse . 20 Herb, ‘No representation without taxation?’. 21 Bornhorst et al., ‘Natural resource endowments and the domestic revenue effort’. 22 Gaidar, Gibel’ imperii . 23 Ross, The Oil Curse . 24 Perks and Schulz, ‘Gender in oil, gas and mining’; Daggett, ‘Petro-masculinity’; Etkind, ‘Petromacho, or mechanisms of de-modernization in a resource state’. 25 Schmitt, Political Theology . 26 Ross, The Oil Curse . 27 Polanyi, Origins of Our Time: The Great Transformation , p. 26. 28 Hayek, ‘A commodity reserve currency’; Steil, The Battle of Bretton Woods ; Mitchell, Carbon Democracy . 29 Keynes, Collected Writings , Vol. 21, p. 27. 30 Wong, ‘The untold story behind Saudi Arabia’s 41-year U.S. debt secret’. 31 McNally, Crude Volatility ; Clayton, Market Madness ; Schneider-Mayerson, ‘From politics to prophecy’. 32 Spenser, New Economics of Oil . 33 Freud, ‘Character and anal eroticism’. 34 Etkind and Minakov, ‘Post-Soviet transit and demodernization’. 35 Gustafson, Wheel of Fortune ; Etkind, ‘Putin’s Russia: an exemplary case of hyper-extractive state’; Rogers, The Depths of Russia . 36 Pokrovskij, Russkaia istorija s drevnejshikh vremen . 37 Gaddy and Ickes, ‘Russia’s dependence on resources’. 38 Keynes, The Economic Consequences of the Peace , in Collected Writings , Vol. 2, p. 15. 39 Novokmet et al., From Soviets to Oligarchs . 40 Russel, ‘Socioeconomic inequality in Russia’. 41 Keynes, The Economic Consequences of the Peace , Vol. 2, p. 11. 42 Rawls, A Theory of Justice . 43 Milanović, Global Inequality . 44 Wenar, Blood Oil .