Economy, oil, quality of life in North Caucasus

source: Open Democracy, The Oil Drum,

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, and many hold temporary jobs leaving them with an insecure future. More than half of the incomes are below the poverty line, and in 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 regional growth.

The infrastructure is lacking: water, electricity, natural gas. Due to increased poverty, corruption is rife, making it hard for the population to access 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.


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 winning the Russian-Circassian war, Russia opened the first oil refinery in Krasnodar-Krai (which had been part of Circassia).

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

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 sustains much of Europe (including major states like Germany which affects their political relations).

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’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 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

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 1500 oil refineries near Grozny (1970's photo)

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 incites a hostile unstable climate in the region.

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

The profit results from the exploitation of local resources is greater than the investments of companies or the federal budget allocated by Moscow. The Caucasus ski resorts plan will not alleviate the situation since specialized personnel is being brought from major Russian cities and profits 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 large unexplored resources, it risks resource depletion like Siberia.

The Sochi Olympics and the ski resort plans are part of a plan to make Caucasus a tourist attraction and give it a “investment-friendly” face. Russia brings up Israel as example of how a country can flourish in a war atmosphere.

Life in rural Abkhazia – a presumably “independent” breakaway state of Georgia, which is under Russian defacto control.

Life in rural Chechnya

Next to poverty, the people of Chechnya are confronted with the consequences of two wars which killed over 100.000 people and destroyed villages and towns. 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.


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)


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

The news report below analyzes the general atmosphere in which people live every day, marked by constant fear.