Origins: The Birth of the Oil Industry (Pre-1917)
Baku’s Boom
The modern oil industry began in the 19th century in Baku, in the Caucasus region (now Azerbaijan). By the early 1900s, Baku accounted for nearly half of the world’s oil output.
- The Nobel Brothers (yes, of Nobel Prize fame) and Rothschilds built early refineries and infrastructure.
- The Russian Empire became one of the first nations to industrialize oil production.
Revolution and Nationalization (1917–1928)
- After the Bolshevik Revolution, Lenin’s government nationalized the oil industry.
- The focus shifted to state control, and oil became a strategic resource for the new socialist economy.
- Despite civil war and international isolation, Soviet engineers restarted production, especially in Baku and the Volga-Urals region.
Stalin’s Industrial Drive (1928–1953)
- Under Stalin’s Five-Year Plans, oil became key to industrial growth and military power.
- New fields were developed in the Caucasus, the Volga, and the Urals.
- During World War II, the Battle of the Caucasus was partly driven by Germany’s attempt to seize Soviet oil fields in Baku and Grozny.
- After the war, the USSR began expanding exploration eastward.
The Siberian Shift (1950s–1980s)
- The discovery of giant oil fields in Western Siberia (e.g., Samotlor in the 1960s) transformed the Soviet economy.
- Western Siberia became the engine of the USSR’s energy might.
- Oil exports funded the Soviet Union’s global ambitions and supported its planned economy.
- By the 1970s, the USSR was one of the world’s largest oil producers and a major exporter, especially to Eastern Europe via the Druzhba (“Friendship”) pipeline.
Decline and Crisis (1980s–1991)
- By the 1980s, inefficiency, aging infrastructure, and falling oil prices hurt the Soviet economy.
- Oil revenues had been propping up the Soviet system, and the collapse of prices in 1986 was a financial shock.
- The fall in revenue contributed to the economic stagnation and eventual dissolution of the USSR in 1991.
Post-Soviet Turbulence (1991–2000)
- After the collapse, the Russian oil industry was privatized — often through controversial and corrupt means.
- Powerful “oligarchs” gained control of major oil companies (e.g., Yukos, Sibneft, Lukoil).
- Production initially collapsed due to chaos and underinvestment.
- The state’s role weakened, and oil became both an economic lifeline and a source of elite power.
Putin Era: The Return of the State (2000–Present)
- Vladimir Putin reasserted state control over “strategic” oil and gas assets, most notably through Rosneft and Gazprom.
- The 2000s oil boom (driven by global prices) funded Russia’s economic recovery, military modernization, and geopolitical resurgence.
- Oil became the foundation of the “energy superpower” narrative.
- However, sanctions (since 2014 and especially post-2022) and declining Western technology access challenge Russia’s long-term energy sector.
- The Kremlin now looks eastward — toward China and India — for markets and investment.
Legacy and Global Impact
- Oil shaped Russia’s political system, foreign policy, and economic destiny.
- From Baku’s pioneers to Siberia’s megafields, it’s a story of innovation, exploitation, and control.
- Today, Russia’s identity as a petrostate remains central to its global strategy and internal stability.
How Oil caused the fall of the USSR?
Oil and Gas as the Soviet Lifeline
- By the 1970s–1980s, the USSR relied heavily on oil and gas revenues to fund its planned economy.
- Fossil fuel exports, especially to Western Europe and other socialist countries, brought in hard currency, which was vital for importing technology, machinery, and consumer goods.
- The state budget became increasingly dependent on high oil prices.
Vulnerability to Global Oil Prices
- In the early 1980s, oil prices were high, masking structural inefficiencies in the Soviet economy.
- When global oil prices collapsed in 1986, the USSR suddenly lost billions of dollars in revenue.
- This exposed the economy’s over-reliance on fossil fuels, making it difficult to fund industry, social programs, and military spending simultaneously.
Structural Weaknesses in Fossil Resource Management
- The Soviet oil and gas industry had aging infrastructure and inefficiencies.
- Extracting and transporting oil from Siberia was expensive, and declining productivity in older fields made the revenue shortfall worse.
- Investments could not keep pace with needs, leaving a financial gap that weakened the state.
Economic Stagnation and Political Pressure
- Falling fossil fuel income contributed to economic stagnation: shortages, inflation, and declining living standards.
- The state’s inability to maintain subsidies and social programs eroded public trust.
- Regional republics and elites, seeing the weakening central government, pushed for autonomy, adding political strain.
The Fall of the USSR
- By 1991, the USSR was financially strained, politically fragmented, and socially restless.
- Oil and gas had previously propped up the economy, but the combination of low prices, inefficiencies, and over-reliance on fossil resources contributed directly to the collapse of central authority.
- In short: the Soviet state was built on fossil fuel revenue, and when that lifeline faltered, the system could no longer sustain itself.
Price of Oil
Key data
According to U.S. data, oil averaged about US $28–34 per barrel in 1981.
By 1986, crude oil prices had collapsed to roughly US $12–15 per barrel in some benchmarks.
One source states: “In the Soviet period … oil prices peaked in 1980 ($88 per barrel) and then gradually fell … to $26 per barrel in 1986.”
The drop in export revenue from fossil fuels is cited as a direct contributor to the collapse of the Soviet system.