Andrew Zolnai

~ From Russia with love ~

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Redlands CA, USA, 15 June, 2005 - I just returned from a two-week-long business trip in Russia and Ukraine. I participated in meetings in the oil&gas communities in West Siberia and Southern Ukraine. Both regions have significant petroleum reserves that were under-utilized in previous regimes, so that both countries see themselves as the next big oil province as the Middle-East declines in oil reserves and political stability. The news you may have heard around Komorovsky and Yukos, attest to the seriousness with which Russia takes its oil wealth.

I share with you a view from that part of the world, as I believe it sheds a different light on western views on the status of our society, globalization and the onset of the post-modern era. There is a bit of geopolitics one must go into in this complex region, but it helped me keep my eyes wide open toward our own future - as a Southern California resident in the oil business, I witness first-hand the haggling among Chinese Offshore Petroleum and Chevron over the purchase of Unocal, and its implications for oil futures. This is also my sixth trip to Russia, so you may view my poems, or photos.

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As I understand it, any discussion of our future revolves around this conviction: our clear thinking freed of wide-world distresses will make us better leaders, and help us usher the inevitable evolution of our society toward its post-modern era. As leaders it is crucial that we understand the geopolitics this entails. And we are a wonderful variety of people, whose viewpoints and experiences are a wealth of knowledge we can share to help in our leadership. I already posted a few of my views on current society. I will share what I learned in West Siberia and Ukraine, because it shows from a critical region, where society might be heading in terms of its energy resources, which are still a prime driver of current geopolitics.

Please note that I went there as a guest and listened to what they have to say. I only spoke to the narrow topic of computer technology my firm is helping them develop. In other words this reflects neither political nor social debate while there. And while I do stay a week or two at a time, I only do so once or twice a year. I also interact with the top percentile of Russian and Ukrainian business; while I've known them long enough and gained their confidence to receive their world view, and while I see what goes on in the street, I only experience a privileged view of modern Russia and Ukraine. The same goes for my life in Southern California as a middle-aged middle-class privileged white male with wife and daughter.

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Russia and Ukraine harbor geologic provinces on both sides of the Ural Mountains that separate Europe from Asia. These regions hold a lot of oil&gas, and are analogous to other rich oil provinces such as in the US. For example one the thrusts of World War II was Nazi Germany's attempt to occupy the oilfields of eastern Ukraine. For various reasons we can't elaborate now, the Czarist and Communist regimes failed to fully exploit these regions for oil&gas - that leaves them uncommonly rich in untapped resources. These two regions are to be distinguished from the Caspian region, where there are similar amounts of oil&gas that have been exploited relatively continuously: the Nobel Brothers started exploring near Baku in Azerbaijan early in the 20th century; the Communist-era industry was largely fueled from there, and western oil companies got involved well before the fall of Communism to continue thru today.

Did you know that Stalin cut his political teeth in the oil-fields of Baku among the terrible working conditions there, and that is why oil from that region was exploited rather than in Siberia? Stalin is from nearby Georgia, favored that region at the start Russia's post-war industrial boom, and that status remained thru the entire Soviet era! Such lack of dynamics and evolution is part of what brought the Communist regime down, less that fifty years after his death...

Another distinction of the Caspian region is that it is politically unstable. It's at the cross-roads of early Barbaric invasions, of Eastern Christianity and Islam, trades routes from Europe to Asia, and nationalities that forever battle their territories right up to today. So the relative isolation and stability of West Siberia and Ukraine, and their relative lack of past development and exploitation, makes those ideal regions for Russia to stake its energy future. And Vladimir Putin is dead serious about who controls Russian oil - any oil company there has to have at least 50% Russian ownership, anyone who strays too far into free-market capitalism is locked up (like Komorovsky @ Yukos), and the same old system of oil&gas lease ownership, extraction from the ground and delivery to market remains in place today - Lukoil and Gasprom are Soviet-era apparatuses still in control of the largest world reserves in oil&gas (Rosneft/Yukos are small post-Soviet start-ups, yet heavily controlled by the state).

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These companies' oil&gas reserves long went undocumented, as they were considered state secrets under Communism. Yet they dwarf any reserve estimate of all western oil majors. Only Middle-Eastern oil and more recently gas, and possibly Canadian oil-sands are in the same league. The latter has always been problematic to produce. Middle-eastern gas development is plagued by recent political and economic instabilities. And Middle-eastern oil that was produced thru relative earlier peace is starting to run low: there is still about a century left at current consumption levels, depending on how it's estimated; but that does not account for potentially booming consumption from emerging Asian markets, most notably China and India. And markets are not waiting to see how those economies shape up: all recent pipeline construction is planned from Siberian and Caspian regions toward China, and no longer US or Europe. Spot situations such as the Beijing Olympics spurred this on, since all coal consumption must be converted to natural gas in order to meet pollution standards for the next Games. Other situations helped like Europe's disagreement on where new pipelines should lie and to which markets.

The matter of the fact is that China is truly a sleeping giant that is awakening from its slumber. Most seismic vessels (the ships used for offshore exploration, where most of the remaining oil&gas are thought to lie) and most of the steel (used for pipes) and coal (used for smelting of steel) have recently been bought up by Chinese concerns worldwide (it caused the resurrection of the coal industry in Western Canada for example). And this is seen as the industrial pre-amble to consumer patterns that economists predict. With the launching of industries, earning and spending power of Chinese workers and businesses will increase, as will the consumption of goods and raw materials. Oil&gas are the prime feedstock currently for all economies, as nuclear power is still deemed unsafe, and hydro power entails huge investments and lead-times (although the Three Valleys project was just completed in China).

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This is what Europe and America are worried about, in the corridors of political and business power, yet neither in the media nor in the street: that EU and US economic powerhouses may soon be eclipsed, as their economic demand is dwarfed by those in emerging Asian markets. The West was given a respite in the collapse of Eastern markets in the past decade, and the economic boom in the West at the same time. But that only lulled the West into a false sense of security, and only postponed the inevitable: that the West might have to stand in line behind Eastern market demands. And this will be driven by sheer market capitalism that is currently reaching global proportions (the only hold-outs are Cuba and North Korea, and China is rapidly changing by-hook-and-by-crook). So while US and Europe hail the victory of Western capitalism and look to its spread in the East, are they prepared for what that will entail globally in the long run?
General Charles de Gaulle once mused in comparing World War II (in which he was a French hero) to World War I (in which he was an unknown officer), plus ça change, plus c'est la même chose: the more things change, the more they stay the same (the Trianon Treaty that subjugated Austro-German aggressors ending WWI, only lead to new aggression from Nazi Germany and WWII). So worrying about Homeland Security is not unlike what happened in Constantinople 500 years ago (while the Church elders who lead the city were debating how many angels fit on a pinhead, the Turkish were breaking down the city gates and ushered almost half a millennium of Ottoman occupation in Eastern Europe and the Middle-east)? Likewise, while Islam causes real and present problems in the Middle-East and Asia thru the terrorist activities of its militant minority, the real issue is the economical onslaught from the emerging Eastern markets. In aiding and abetting that free-market forces conquer the world, did the West not architect its own doom by putting itself in a vulnerable position, thru the very processes it championed itself?

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And the economic consequences will be sociological too! Western economies are largely driven by white people. But over time, the role and numbers of people of color will change: Immigrant laborers in Europe settle and become part of the fabric of society. African-, Asian- and Hispanic-American sectors are on the ascendant in North America, as their numbers and opportunities grow. And Middle-eastern, African, Latin-American and Asian markets (the rest of the world, in fact) are pre-dominantly non-White. Some say the end of the Colonial era occurred, when western White Europeans were sent home. I say that the end of Colonialism is just starting now, as the rest of the non-White world becomes predominant. I also cannot fail to notice, that this was ushered by the non-Colonial nation par excellence, the USA...

So back to the future: First comes the re-evaluation of the assumptions in our own lives and our surroundings. And keeping a very clear head about it is a very good place to start... Then comes leadership in our lives, such as living simply, leading by example, building family or community. Let me finish with this: Every movement that changed anything in the world started small, with a future and an outcome that rarely were self-evident. Dwight Eisenhower had two speeches in hand, and not just a victory one, as he landed in Normandy on D-Day... and that only came to light half a century after he arrived in Berlin and victory in Europe! What we must provide as individuals is a real hope, an actual infrastructure and set of principles that guide us along, and that help us include everyone. Neither do we all organize Live8, nor need we all be Bob Geldofs: but it helps immensely to keep our heads about us, like he did over 20 yrs since LiveAid.

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