Economy

source: Open Democracy, The Oil Drum, abebooks.com

The North Caucasus (Adygea, Kabardino-Balkaria, Karachay-Cherkessia, Dagestan, Chechnya, Ingushetia) is the poorest region of Russia. It has the highest youth population, and also the highest unemployment rate.

The official statistics for unemployment vary slightly from one republic to another, yet that doesn’t reflect any positive differences in the quality of life, as many hold temporary jobs leaving them with an insecure future. More than half of the incomes are below the poverty line, and in the case of temporary jobs – employees have often trouble receiving payments on time.

The republics survive on subsidies from the federal budget allocated by Moscow (which controls the management and exploitation of all natural resources in the area). The centralized allocation of tax revenues to Moscow restricts any possible regional growth.

Most of the population is still rural and the infrastructure is lacking: water, electricity, natural gas. Due to increased poverty, corruption is rife, making it hard for the population to access any services without offering bribe. Certain regions in Chechnya are still heavily land-mined, making it not only dangerous, but also blocking rural populations from fending for themselves through agriculture. No international mine-clearing experts have been allowed in since the end of the second war.

See more about Chechnya’s economy here

 

Rich in natural resources

The North Caucasus region is one of the oldest hydrocarbon-producing areas of the Former Soviet Union, production having begun since mid XIX century. In 1864, after finally winning the Russian-Circassian war, Russia opened the first oil refinery in Krasnodar-Krai (which had been part of Circassia).

Since its first day of exploitation, Caucasus oil has been under the direct control (and used for the benefit of) the Russian elite and of Rothschild family – see a short history explanation here (minute 7:05)  https://www.youtube.com/watch?v=yCfpENe1UZ0

Despite its local resources, the population has always been and still remains impoverished.

 

One of the 1.500 oil refineries of Grozny, Chechnya (picture from 1970’s)

 

Today, Russia ranks third in the world in oil production, after Saudi Arabia and the United States. The North Caucasus is a key hydrocarbon energy distribution network that feeds much of Europe (including major states like Germany, which also affects political relations).

Yet ironically, the region lacks basic infrastructure such as clean water, natural gas, and modern transportation infrastructure.

In 2012, Vladimir Putin declared that Russia’s key goal was to maintain its position as one of the world’s largest oil producers. The aim is to maintain annual output at around 505 million tons over the coming years, and increase it to 535 million tons by 2030.

 

CHECHNYA

Chechnya’s “known” hydrocarbon reserves are estimated at 350 million tons of oil and 67 billion cubic metres of natural gas. In 2011 alone, Rosneft’s (Russian state company) pumped 800,000 tons of oil from the Chechen republic.
In 2006, the chairman of the Chechen People’s Assembly declared that Rosneft gains about 600 million dollars from selling oil produced in Chechnya, while Chechnya’s budget gets no more than 1 million dollars.(source)

In recent months, Chechen Republic head Ramzan Kadyrov has repeatedly criticized Rosneft for not paying taxes in Chechnya and for “not allowing us to develop our oil and gas industry.”

“Gazeta” (Russian newspaper) argued that “passing over oil-drilling license to Chechnya will let the Chechen administration control production and cash flow. This means that Chechnya would have serious political tools. Moscow will never agree to it.”

 

DAGESTAN

Dagestan provides additional free access to the Caspian Sea. Geologists estimate – 161 million tons of oil and gas condensate reserves (10.4 million have already been explored) and up to 155 billion cubic meters of natural gas.

Three pipelines pass through it: the Baku-Novorossiysk oil pipeline (274 km), Mozdok-Kazimagomed (297 km) and Makat-North Caucasus (129.4 km) gas pipelines.

Besides oil and gas, Dagestan has considerable deposits of brown coal, oil shale, peat, sulphide, iodine and bromine, carbon dioxide and abundant siliceous and ferrous deposits.

Lukoil is expected to develop the North Caspian production capacity to 320 kbd of oil and 13 billion cubic meters of natural gas per year by 2020. Lukoil expects that the increase in production will be able to offset declines that are anticipated from Western Siberia by that time.

The Siberian oil fields are set to be depleted by 2020. Has Siberia had enough of Russia?

Russia has only 7 years before oil crisis

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History of oil exploitation in the Caucasus

The production of the northern Caucasus increased from 100,000 poods in 1877 to 1,656,000 poods in 1889. Note: poods were the early Russian measure of production and that there are 8.33 poods per barrel.
In 1884 – 1914 Georgia exported a total of around 165 million barrels of oil of oil. The oil came from Grozny (Chechnya) and Maykop (Adygea), even though there were considerable (and yet unexploited) oil reserves in Georgia.

One of the 1.500 oil refineries near Grozny, Chechnya (1970’s photo)

The oil fields around Grozny were first developed in 1893, with 386 wells by 1917 which grew steadily. After the 1990’s war destruction, only 100 operating oil wells had survived out of 1500 oil wells in and around Grozny.

Recently, Lukoil (Russian company) carried out a series of explorations which uncovered numerous new oil/ gas reserves in Dagestan’s Caspian Sea and Chechnya.

 

Main oil refineries: Maykop (Adygea), Grozny (Chechnya), Guria (Georgia), Caspian Sea (Dagestan)

 

 

Compromised democracy

In 2013, the Russian government ordered that the governors in Dagestan, Ingushetia, North Ossetia and Kabardino-Balkaria be appointed instead of being directly elected. By compromising democracy, Moscow itself creates a hostile unstable climate in the region.

Promises of industrial investments have been promised in order to “alleviate poverty” in the region. A $15 billion tourist development plan was established in 2011 to “stem terrorism”.

Yet, the exploitation of resources brings a profit many times over the investments of large companies or the federal budget allocated by Moscow. Also, the grandiose Caucasus ski resorts plan will not alleviate the situation and improve the quality of life of the local population- when specialized personnel is being brought from major Russian cities, and profits are being redirected to major Russian tourist companies instead of local businesses (read more – Russia’s tourism investments in the North Caucasus).

 

Tourism investments, Sochi Olympics and oil

Russia is running out of resources due to lack of alternative extraction methods and modern technologies. Though North Caucasus has huge unexplored resources, it risks resource depletion alike Siberia. Russia needs new technologies and foreign investments in order to avoid a future Siberia scenario. But investors are cautious of war-torn Caucasus.

The Sochi Olympics and the grandiose ski resort plans are part of a plan to make Caucasus attractive to tourists and investors alike, and give it a more “investment-friendly” face. Despite criticism, a very confident Russia constantly brings up Israel as example of how a country can flourish in a war atmosphere.

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Life in rural Abkhazia – a presumably “independent” breakaway state of Georgia, which is under Russian defacto control. We can freely say it showcases life for most of rural Caucasus

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Life in rural Chechnya

Other than poverty, the people of Chechnya are also confronted with the consequences of two unforgiving wars, which killed over 100.000 people and destroyed entire villages and towns. To add to it, civilians live with fear of arbitrary arrest or kidnap by authorities (see Forced disappearances – crime against humanity)

Myahdi (widower, father of 3) who participates in the documentary, was arrested in a market later on. Watch the documentary to see what happened to him.

 

The rebuilding efforts have concentrated in central Grozny. People whose houses have been destroyed still live stranded in dire conditions. See more below (latter part of the report)

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Ingushetia

Ingushetia has the highest unemployment rate in North Caucasus. On top of poverty, it is also one of the most unsafe regions for both visitors and locals.

The news report below analyzes the general atmosphere in which people live every day, marked by constant fear. The same situation applies to Chechnya and Dagestan as well.

“We are not so scared of the (rebel) militants as we are of these officials” says the cousin of a young man who was detained and killed in his family house

 

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CONCLUSION

North Caucasus is an undoubtedly rich region with various resources. For Russia, which has almost completely exhausted the Siberian resources by using brutal extraction methods, North Caucasus holds a crucial role for the economic supremacy over a resource-dependent Europe and the competition with major powers like China.

Moscow impends any positive development in the region by appointing its own leaders instead of allowing free elections and democracy. The centralized allocation of tax revenue between Moscow and the republics restricts any possible regional growth. Also, by refusing to take responsibility and stop the enforced disappearances of civilians, it gives way to more rebellion and insurgency.

Therefore, North Caucasus is set to suffer a similar fate to Siberia, which despite its considerable riches, didn’t see any regional development and now is only years away from complete depletion of its resources, turning it into a wasteland.