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Russia: A superpower rises again

By Simon Hooper for CNN
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(CNN) -- In the days after the collapse of the Soviet Union in 1991 it became common to refer to Russia as a former superpower.

Enduring political and economic upheaval through the 1990s, Russia turned inwards, no longer willing or capable of exerting itself on the world stage as it had done under the banner of the hammer and sickle.

As former president Boris Yeltsin set about transforming Russia into an extreme experiment in free market capitalism, breaking up the former Soviet economy quicker than disciples of the new order could tear down statues of Lenin, no industry experienced more upheaval than the energy sector.

When the dust settled, a few opportunist and well-connected businessmen had made vast fortunes by snapping up hastily privatized state assets at bargain prices.

But that was at the expense of both the government and millions of Russians left languishing in poverty, many having been persuaded to sell off allocations of shares in the new oil and gas companies before realizing their true worth.

Yet now there are signs Russia is beginning to use its massive reserves of natural gas and oil as a lever to wield influence internationally as it hasn't done since before 1991.

One of the dominant themes of President Vladimir Putin's period in office since 2000 has been his efforts to recoup those resources given away so cheaply by his predecessor.

Putin first set about curbing the power of the oligarchs, notably arresting and locking up Mikhail Khodorkovsky, the former head of the Yukos oil company and once Russia's richest man with an estimated fortune of $15 billion, on tax evasion and fraud charges.

Now it appears the Kremlin also has foreign companies operating in Russia's oil and gas fields in its sights.

"Russia needed that pure shot of capitalism [in the 1990s] when the oil price was weak and Russia needed the money," Mike Ritchie of industry analysts Energy Intelligence told CNN.

"But a lot of the deals that were signed are seen as having been very disadvantageous to Russia, and now it is doing its best to rectify that and get it back under its control."

On Tuesday it was reported the Anglo-Dutch energy company Royal Dutch Shell had offered to cede control of the $20 billion Sakhalin-2 fields in Russia's far east to the state-owned Gazprom company.

Amid criticism of Shell's environmental record and rising costs, Gazprom chairman Dmitry Medvedev -- also Russia's first deputy prime minister -- said a deal giving it a stake worth around 50 percent in Sakhalin-2 was almost finalized.

But most analysts believe Shell's apparent willingness to surrender control of two fields estimated to contain 1.2 billion barrels of oil and 500 billion cubic meters of natural gas, was the culmination of months of pressure from Moscow.

"They're not going to pay money to get their hands on these assets. They will just use a lot of pressure from the center," said Ritchie.

Sakharin-2 is not the only example of Russia's new determination to exert its sovereignty over its vast natural resources.

Under Putin, the state's share of oil production has doubled in the last three years, according to the Organization for Economic Cooperation and Development.

In October, Gazprom was granted complete ownership of the Shtokman gas field -- the world's third largest -- in the Barents Sea in a snub to international companies including Chevron, Statoil and Total who had all bid for stakes in the project.

The reasons behind Russia's determination to bring its energy industry under closer state supervision are clear.

It has the world's largest proven reserves of natural gas as well as significant quantities of oil and is vying with Saudi Arabia for the status of the world's leading oil producer.

Record oil prices are one of the primary reasons why the Russian economy has been growing at an annual average rate of six percent since 1999. In the same period Moscow's oil earnings have also increased nine-fold to around $150 billion a year.

Another is the fact that Russia provides around one-third of western Europe's natural gas supplies, a dependency only likely to increase in years to come.

Aware of the influence that such energy dependency gives it over its neighbors, Russia has already started to flex its muscles.

Last year it cut off supplies to Ukraine in a diplomatic spat over pricing -- with a knock-on effect on supplies to Poland and Germany.

On Tuesday Russia said neighboring Belarus, a close Russian ally that has long benefited from subsidized prices, would have to pay full export duty on supplies of Russian crude oil.

And Russia remains locked in discussions with the E.U. over guaranteeing future gas supplies to Europe.

"There's no doubt Russia sees its resources as a strong way to exert its influence," explains Ritchie. "It's not just about energy security for Europe. The Russians say they are going to make all the investments in these fields and they want to make sure there is a guaranteed security of demand.

"They also want to have a foothold in the markets they are supplying to. They want to be involved in terms of distributing and retailing. That's not an unreasonable demand."

Critics of Putin say Russia's control of Europe's gas supplies has insulated him from international concern over the growing concentration of power in the Kremlin, and spared his regime from scrutiny over the deaths of investigative reporter Anna Politkovskaya in October and the former spy Alexander Litvinenko in London last month.

But Ritchie says Russia is merely exerting its status as an energy superpower, as it always has, for strategic gain.

"Russia was always a superpower that used its energy to win friends and influence among its former Soviet satellites. Nothing has really changed much. They are back in the same game, winning friends and influencing people and using their power to do so."

Russia is seeking to re-assert its control over its far eastern oil and gas reserves.

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