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Editorial comment

This summer’s heat wave and subsequent wild fires have caused death and destruction across wide swathes of central Russia. At least 53 people have died as a direct result of the fires. Over recent weeks, Moscow’s mortality rate has doubled to 700 each day. Estimates suggest that a total of 7000 deaths will be attributable to the heat and smog in Moscow alone, and nationwide the figure is likely to be at least 15 000. From an economic perspective, the fires have been no less damaging with a total ban on grain export, a major source of Russian export revenue, until the year end and a decline in manufacturing productivity as workers have been forced to stay at home.

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For Russia, the subject of this month’s regional report, ‘Upstream opportunities in Russia and Central Asia’, by Robert Orttung and Indra Overland beginning on page 10 of this issue, the crisis and the manner in which it has been handled is indicative of a wider malaise. As severe and devastating as the wild fires have been, their longevity has been exacerbated by the deterioration of Russia’s core infrastructure. Appalling road conditions and antiquated firefighting equipment severely hampered Russia’s ability to tackle the fires at the onset and prevent a wider disaster. The same problems pervade Russia’s energy sector and are referred to in the regional report. The oil and gas industry in Russia has tremendous potential with 30% of the world’s conventional natural gas reserves and 10% of the world’s oil reserves, but as major established fields reach maturity and start to deplete, significant investment is required to develop new and to modernise existing resources just to maintain current production levels, let alone increase them.

For Russia, the problem has not been helped by the current economic downturn. Not only has this seen a reduction in demand for gas, Russia’s production fell from 664 billion m3 in 2008 to an approximate 580 billion m3 in 2009, but a glut of new gas arriving on the market as LNG facilities in the Middle East come onstream has depressed prices significantly from their highs of July 2008. The international banking crisis has similarly deprived Russia of cheap foreign credit, and would be investors have been discouraged by the aggressive and perceived heavy handed stance taken by the Russian government in recent years in its bid to wrest control of assets back from international oil and gas companies.

With its prospects for modernisation and growth compromised in this way, there has been a perceived change in Russia’s foreign policy. Under Medvedev, Russia appears to be turning its back on the confrontational politics of the Putin era and instead embracing a more conciliatory stance in its attitude toward the west. Medvedev has voiced the concept of a new pragmatic Russia that has ‘no friends, or enemies, only interests’. In so doing he has called for the establishment of ‘modernising alliances’ with the US, Germany, France, Italy, and the rest of the European Union. This is clearly a significant shift in policy and one that has already borne fruit with the resolution of a long running Arctic border dispute with Norway in the Barents Sea, noticeably improved relations with the US including the establishment of a new STARTS treaty and support for new sanctions against Iran.

Whether this cordiality persists in the long term remains to be seen but as the recent wild fires and the ongoing decline of its super giant oil and gas fields clearly demonstrate, Russia needs major infrastructural modernisation and that will have to come from both internal and external investment. Perhaps Russia’s new pragmatism is a case of keeping its friends close and its enemies closer.

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