The Daily Planet #44: The Petrostate, Part 5

I am no economist, but in many ways, Petrostates feel like planned economies, not market economies. The production of one commodity dominates their revenues and if that's done - as it often is - through one nationalized company such as Saudi Aramco, then running the company (which is a planned economy, as all companies are) is the most important function of running the state.

The good news is that liquid gold insulates you from all other market forces so you can invest in your society without having to take into account the preferences of most people who live in it. The bad news is that liquid gold insulates you from all other market forces so you don't know what the rest of your society is thinking.

Which brings me to a country that very few people think of as a Petrostate, but one whose successor definitely is: the Soviet Union.

For an extended period of time, the Soviet Union was the world's largest producer of energy resources. In 1989 (the last year for which comprehensive data is available), total energy production, including oil, natural gas, coal, hydropower, and atomic energy amounted to about 21 percent of the world's total production, as opposed to the United States' 20-percent share. Gas made up 36 percent of the total energy output in the USSR; oil comprised 36 percent; and coal amounted to 20 percent.

The Soviet Union's oil and gas dependence evolved significantly from the mid-20th century, shaped by vast resource discoveries and economic policies. Initially, the USSR's energy consumption relied heavily on coal and other traditional fuels, with oil production centered around the Baku region. Post-World War II, focus shifted to the Volga-Urals basin, where large deposits were found, boosting oil output. However, as these fields began to decline, the discovery of massive reserves in Western Siberia during the 1960s became pivotal, making it the largest oil-producing region in Soviet history. This expansion allowed the USSR to become the world's second-largest oil producer by the late 1950s and the largest by the 1980s.

Despite rapid growth in oil production and exports, the Soviet economy became increasingly reliant on oil and gas revenues, especially hard currency earnings used to import food, machinery, and technology. The centrally planned system, with its unrealistic production targets and distorted incentives, hindered efficiency and innovation in the sector. The abundance of resources delayed energy-saving reforms, leading to declining energy efficiency and economic stagnation. Fluctuations in global oil prices in the 1980s exposed the USSR's vulnerability, as falling revenues contributed to economic instability. Ultimately, this dependence on oil and gas revenues postponed necessary reforms and played a significant role in the Soviet Union's economic decline and eventual collapse.

The Formation and Evolution of the Soviet Union’s Oil and Gas Dependence

Between the end of World War II and the mid-1960s, the Soviet Union’s economy was one of the most vibrant in the world. The country had successfully launched the first man into space and was competing with the United States in developing cutting-edge military technology. However, by the end of the 1980s, the economy was in a miserable state.