Energy

Is Chechnya Finally Going to Control Its Own Oil Reserves - and Thus Its Destiny?

Analysis 30 November 2018
Is Chechnya Finally Going to Control Its Own Oil Reserves - and Thus Its Destiny?

In one pivotal scene in David Lean’s 1962 film Lawrence of Arabia, Thomas. E. Lawrence asks the British general in Cairo, Sir Edmund Allenby, to provide the Arab revolt with artillery. The general’s political advisor says that if he gives the Arabs artillery, he will have effectively given them independence. In that case, Allenby says, he cannot do it. That dramatized exchange springs to mind after Chechnya’s leader, Ramzan Kadyrov, said in Grozny on October 28 that his republic is on the brink of acquiring a 100 percent stake in a petrochemical extraction company. That state acquisition will crucially allow the Chechens to pump, process and sell oil on their own (RBC, October 28).

Kadyrov draws the majority of his power from his control over the local armed forces as well as his willingness to engage in “wet” operations that his political patron President Vladimir Putin wants to retain deniability about. But Kadyrov and the republic he heads remain overwhelmingly dependent on Moscow’s subventions because they simply do not earn enough on their own to stand up to the center. At least potentially, the Chechen acquisition of control over an oil company would change that equation, creating new dangers in the region for Moscow once Kadyrov is able to finance his own government more fully. Such a scenario would simultaneously save the Russian government money but also lessen its control over Kadyrov and Chechnya.

The RBC news agency reports that Kadyrov has been pursuing the acquisition of Chechenneftekhimprom since at least 2015, when he first broached the idea with Putin. The Kremlin leader supposedly agreed, but the plan went nowhere; and the following year, Kadyrov complained to Putin that the Russian government was standing in the way. Since then, talks have proceeded fitfully behind the scenes over ownership of a company that controls approximately 2,000 plots of land with a total area of 7,740 hectares on which there are more than 1,100 oil wells, but “the majority of which are not in working condition,” RBC says (RBC, October 28).

Moscow has not been active in seeking outside investors to restore their operation and develop the oil industry in Chechnya, something Grozny has complained about in the past and now says it can do better on its own. Indeed, Kadyrov said a month ago that once his republic acquires the company, that is exactly what he will do. If he is successful, oil production in Chechnya and earnings from it could shoot up. That will be all the more so if Moscow approves the new border agreement between Chechnya and Ingushetia (see EDM, September 27; Commentaries, October 23). On the territory transferred from Ingushetia to Chechnya, there are 19 oil wells, although most are not now in working condition either (Newcaucasus.com, October 14).

Nevertheless, since Kadyrov’s declaration in late October, there has been no indication that the deal over Chechenneftekhimprom has been consummated. And that may mean Kadyrov’s claims about gaining control over the oil industry in Chechnya may once again come up short. Despite Grozny’s claims that President Putin has signed off on the deal, in actuality the Kremlin seemingly has no intention of allowing the Chechen head to take control of an assert that could make him even harder to control. Problems in realizing this goal may in fact help to explain why Kadyrov sought the new border accord with Ingushetia, an agreement that gives him control over oil fields located in what many Ingush believe is still their lawful territory.

Oil—its extraction, processing and transport—has been a major issue in Chechnya for decades. The rich deposits there, most of which are located just below the surface, are far less expensive to exploit than other fields in the Russian Federation. Some Chechens have even claimed that their republic has as much oil as Saudi Arabia, although most experts dismiss this as a wild exaggeration (The Moscow Times, June 18, 2015). Furthermore, the republic lies astride some of the most important pipeline routes between Azerbaijan and Russia. The Soviets developed these three transit corridors in what was then the Chechen-Ingush Autonomous Soviet Socialist Republic (ASSR). In 1971, Chechen oil companies processed more than seven percent of all the Soviet Union’s output; but that figure, which included oil from Azerbaijan, fell by three-quarters as of 1985, as oil processing facilities came online in Baku. Chechnya cut back employment in these plants, and the ethnic Russians who had largely staffed them left the North Caucasus republic for oil fields and processing plants in Siberia and the Middle Volga (see North Caucasus Weekly, April 17, 2008).

During the first and second post-Soviet Chechen wars, most of the oil capacity of the republic was destroyed. But as Chechen analyst and historian Mairbek Vatchagaev points out, the Chechens—at least during the first war—were able to compensate for those economic losses in part by stealing hundreds of thousands of tons of oil found in pipelines passing through the republic that Russian troops carefully avoided damaging. Moscow has rebuilt some but far from all of this oil-sector infrastructure; but it has been careful not to give its control over to Kadyrov. Rather, the central Russian government has sought to develop oil processing and transportation links in other North Caucasus republics so that Grozny does not have the ability to hold Moscow hostage. Kadyrov has opposed those projects and sought to counter them by encouraging his own allies in Moscow to build facilities in Chechnya (see EDM, March 10, 2016).

The tug-of-war between Moscow and Grozny thus appears likely to continue, with Kadyrov still pressing his case and attempting to demonstrate his abilities by reopening the oil fields in his newly acquired Ingush territories. If the Chechen leader is successful in that endeavor, and if budgetary stringencies in Moscow increase, Kadyrov’s odds of gaining control of oil throughout Chechnya will inevitably increase. Whereas, Moscow’s odds of maintaining control there will just as inevitably decline.

This article was initially published on www.jamestown.org.
 

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