Page last updated at 12:28 GMT, Saturday, 10 January 2009

Rise of Russia's political fortune

In recent years, Russia has enjoyed unforeseen riches as a result of a huge rise in revenues from oil and gas exports. The BBC's James Rodgers in Moscow reports on what this wealth has done to the country, and what it means for its future.

Prime Minister Vladimir Putin (L) and President Dmitry Medvedev (R)
Russian leaders have become major players on the world stage
Of course, this is a commercial dispute, but you have to understand what that means in a country where the line between politics and business is not clear.

In some places it is broad, blurred and easy to cross. In others, it disappears.

Before he became President, Dmitry Medvedev combined the chairmanship of Gazprom, the giant Russian gas company, with his role as Russia's first deputy prime minister.

Now, when Gazprom wonders whether it might be a good idea to reduce the amount of gas it sends to Europe via Ukraine, its chief executive goes to discuss the matter with the Prime Minister, Vladimir Putin. Not quietly, or in any smoke-filled room, but in Mr Putin's office, in front of the television cameras.

Mr Putin scowls as he hears tales of Ukraine stealing gas it has not paid for. He gives his consent to the plan. The taps are turned.

Nothing has influenced Russia's recent history more than the riches generated by oil and gas revenues.

There must be a fascinating piece of academic research to be written on how the oil price has influenced Russia's political fortunes.

Could Communism have lasted longer if it had been propped up by more dollars from selling energy to the capitalists? Might Boris Yeltsin's reform programme have succeeded if he had enjoyed the higher oil prices which came after his time in office?

The effect is not confined to the realms of research and political theory.

Boom time

I recently travelled to Perm, in Russia's Ural Mountains region. This is the edge of Siberia, and the edge of the oil fields.

Oil field in Ural Mountains
The EU depends on Russia for about a quarter of its total gas supplies
Russia's new riches are most obvious in the streets of the capital and the country's big cities, but this is where they start, in wilderness where the winter wind freezes your face.

No gleaming tower blocks here, only a few wooden houses - and pumps and pipes which take the oil on the first stage of its journey to the refineries. Huge skies arch over these man-made structures, dwarfing them all.

Vladimir Seleznov, the area manager of the oil company Lukoil, showed me round.

"A lot has changed over the last 10 years," he told me.

"Our production standards have improved.

"People's living standards in this area also have improved. Oil is the only thing we have got here, and people's lives depend on it."

Massive projects

The next day, on the outskirts of Perm, I saw what he meant.

Travelling around this country, you sometimes hear complaints that not enough oil money is being used to help ordinary people.

Here, the local authorities had embarked on a massive construction project.

Construction work
New construction work has contributed to Russian optimism and self-esteem

A new road was taking shape on the floor of a shallow valley. The slopes on either side recalled Russia's past - the wooden houses of pre-revolutionary village life faced 20th Century tower blocks.

The new road - paid for by petro-roubles - looked to the future.

Alexander, one of the workers, shrugged when I suggested that falling oil prices might lead to the project being halted.

"Other ones, maybe," he said. "Not this one."

I do not know why he was so sure. It may have been an example of Russia's new national self-esteem, a pride which has been hard to puncture, but which is now feeling slightly brittle.

The wealth is not just important because it is building new roads, but because it makes Russia feel better.

It is only 10 years since there was a major financial crisis here. The currency collapsed. There was a run on the banks. That ghost still haunts Russia today.

Staying strong

National pride is one factor as Russia fights its war of contracts and prices with Ukraine. Another is Russia's approach to negotiations.

I have heard it from oil men, I have heard it from diplomats: Russia rarely seems to appreciate that something can be mutually beneficial. If your opposite number seems content, the suspicion is that he has somehow deceived you. It must be a bad deal, so do not do it.

Map of Russia

All of this is complicated further by the poor state of recent political relations between Russia and Ukraine.

If there is one thing that keeps Kremlin officials awake at night, it is the prospect of some kind of "Orange Revolution", like the one which ushered in the current Ukrainian administration, coming to Russia.

There is no prospect of that happening at the moment, but then no one imagined that the oil price would plummet as it has.

Russia is about to struggle back to work after a lengthy holiday for New Year and Orthodox Christmas.

As they sober up, millions of Russians will be worrying about unemployment - 400,000 lost their jobs in November.

Faced with possible popular discontent in a country where public protest is rare, the government cannot be seen to be weak - either at home or abroad.

From Our Own Correspondent was broadcast on Saturday, 10 January, 2009 at 1130 GMT on BBC Radio 4. Please check the programme schedules for World Service transmission times.

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