Putin

Like most of the other oligarchs, Berezovsky had no real business acumen. Though he lived high on the British hog for a decade, his fortunes took a severe turn for the worse in 2012 when he lost a costly court battle, and in the following year, faced with mere diminishment, all-or-nothing Berezovsky chose nothing, hanging himself in a bathroom locked from the inside, though doubts flicker even around this incident.

But it was not Putin’s seizure of the media, his suppression of dissent, or even his invasions and incursions that would matter most in his own fate and Russia’s but, as will become quite clear, his failure to diversify the economy away from its dependence on gas and oil. The roots of that problem go back a century. In Russia all stories are old stories.

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For centuries Baku’s “fountain of oil,” as Marco Polo called it when passing through in the 1270s on his way to China, had been used for lighting and as “an unguent for the cure of cutaneous distempers in men and cattle.” It wasn’t until the late nineteenth century that Baku’s first gusher came on. Things developed at a breakneck pace. Between 1898 and 1902 Imperial Russia’s oil fields were at the peak of their production, having surpassed those of the United States to lead the world.

The possibilities for fast and enormous wealth attracted people like John D. Rockefeller, the Rothschilds, and the Nobel brothers (they of dynamite and the Prize), who constructed the world’s first pipeline and oil tanker. But it was not only international capitalists who were drawn to the oil fields of Baku. Just as the Russians were overtaking the United States, a twenty-two-year-old Georgian who had been radicalized while studying to become a priest, arrived on the scene. Mixing metaphors from his seminary and political lives, Joseph Stalin said that the strikes he organized in Baku were his “revolutionary baptism in combat.”

He and his fellow organizers succeeded all too well. By the end of the failed 1905 revolution two-thirds of the oil wells in Baku had been destroyed.

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Though names like Standard Oil and Rockefeller were in Communist mythology synonymous with rapacious exploitation, it turned out that Soviet Russia’s oil fields could not be put back into operation without foreign help. In the early 1920s, Lenin had to come to terms with the severity of the havoc wrought by the First World War, the revolution, and the civil war. To bring back some of life’s daily necessities and pleasures, Lenin introduced NEP, the New Economic Policy, which allowed small business to reemerge and flourish. Foreign experts were allowed in.

Lenin’s moves, though ideologically distasteful, were successful. Goods reappeared on the shelves of stores and the oil began flowing again both in the older fields and in the new ones opened up with advanced Western technology. One of those helping out was Frederick Koch, grandfather of today’s notorious Koch brothers. As the story goes, an invention of his for refining gasoline from crude oil was effectively squashed by the major U.S. oil companies, which attacked him with patent-infringement lawsuits that took him more than a decade to win.

In 1928 Koch signed a $5 million contract to construct fifteen refineries in the USSR in Baku and other oil-producing regions like Chechnya. The young Mr. Koch left the USSR with two things: a small fortune of $500,000 (around $7 million in today’s dollars), which would serve as the basis for the future Koch empire, and a fierce hatred of Communism that led him to become one of the founding members of the John Birch Society. Whether he perceived the irony of his entrepreneurial efforts being crushed by naked capitalism at home and handsomely rewarded by Stalin’s Russia is doubtful to say the least.

By the end of the 1920s, however, Soviet farms and factories were producing enough for Soviet citizens, and NEP was done away with. The little stores were closed, and small business became a criminal activity overnight. The foreign oil specialists were paid off and sent packing. Lenin was dead and there was a new man in the Kremlin, the former oil-field strike organizer Joseph Stalin.