Russia’s World Turned Upside Down: How oil, melting ice, and shifts in military and economic power will shape Russian naval strategy

Authored by:  Daniel T. Murphy

An abridged version of this article was published in the May 2012 issue of the U.S. Naval Institute’s Proceedings Magazine.  Click here to view the Proceedings version of this article.

INTRODUCTION

In the years after the collapse of the Soviet Union in 1991, half the Russian Navy was either scrapped or mothballed. The Black Sea Fleet was divided between Russia and Ukraine. The Caspian Flotilla was divided between Russia, Azerbaijan, Kazakhstan and Turkmenistan.  Naval bases outside of Russia, except Sevastopol, were evacuated, and shipyards at Odessa and in the Baltic States were lost.  The Russian Navy’s low point was in 2002, when fleet construction came to a standstill, and I was able to buy a sextant from a mothballed Kashin-class destroyer on eBay for $180 from a guy in Moscow named Igor.

The situation significantly improved through the mid-2000s, as Russia’s gas and petroleum-based economy grew significantly.  When oil peaked above $140 per barrel in 2007-2008, Russian Navy Admiral Vladimir Vysotsky projected the Russian Navy would add three carrier battle groups to the Northern Fleet and three to the Pacific Fleet.[1]  Apparently, U.S. analysts were equally bullish on Russia’s ambitions.  Naval War College Professor Milan Vego thought Russia’s naval buildup possible: “The construction of the lead ships will start in 2012-2013, and they are expected to enter into service in 2017. Each aircraft carrier will require up to six escorts, including one or two missile cruisers, a missile destroyer and two or three anti-submarine destroyers/frigates. The Russian shipyards must have the capability to launch one aircraft carrier every three years and four months if the current plans are to be fulfilled.”[2] In other words, Vego saw shipyard capacity, not cash, as Russia’s key challenge.

Analysts significantly changed their predictions when oil prices dropped in 2008-2009.  Reuben Johnson wrote in the Weekly Standard “The reality now is that not only is the idea of Russia building and operating aircraft carrier battle groups an impossible dream, but just building enough new ships to replace those that are worn-out after decades of use is also not feasible.”[3]  Analyst Alexander Khramchikhin believed the problem was more acute: “Any person who can see the real situation well understands that in a few years the Russian Navy as a whole, as well as all four of its component fleets, will cease to exist. This is already absolutely inevitable — the situation will not be changed even by mass purchases of ships from abroad.”[4]

Oil today is at $85 per barrel – Significantly less than the $140 per barrel prices of 2007-2008.  In the short-term, prices may drop into the sixties.[5]  Prices may eventually trend upwards, and they may spike above $150 per barrel for short periods of time.  And, in the long term, worldwide energy supply will outstrip demand.  So, Russia’s energy-based economy is not going to collapse anytime soon.  Even so, Moscow now knows that they cannot rely on long-term high-priced oil to build and sustain (for the first time in their history) six carrier groups.  There are just too many economic variables that could drive prices down, or at least keep prices volatile.[6]

While Russia’s naval ambitions will not include six carrier groups, Moscow absolutely will continue to build and/or acquire a formidable navy.  Globalization requires that they do so.  Here’s why:

  • Something to Protect – Many countries have shipping and energy infrastructure that may increasingly need to be protected.  Russia is not unique in that respect.  Therefore, the need for chokepoint security, oil platform security, etc., is not a topic of this paper.  What makes Russia different is that they are staking out a claim over the natural resources in a “new world” – The Arctic.
  • Threats Old and New – Russian policy makers are aware of the relative decline of U.S. military and economic superiority, and see China as the most significant threat.
  • Money to Spend – While Moscow cannot count on the kind of sustained high oil prices necessary to build six carrier fleets, Russia will remain an energy-rich country in a future where demand will exceed supply.  Russia will have cash to spend, not only in the bars on Miami Beach.  Unlike in the Cold War, Moscow can now purchase all the naval shipping they will need on the commercial market.
  • The World Turned Upside Down – The accelerated melting of the Arctic ice cap will convert Russia from a mostly landlocked nation to a nation with a seacoast comparable to the U.S. The next generation of Russians will view the Arctic Ocean in the same way that Americans and Europeans today view the Atlantic.

SOMETHING TO PROTECT

The Arctic ice is melting.  In September 2011, when the Arctic sea ice extent reached its yearly minimum, it was the second lowest since satellite records began in 1979.  In fact, it was close enough to the record low of 2007 to be deemed a statistical tie.  The receding ice has uncovered nearly a million square miles of new ocean.[7]  Most of that new ocean is in the exclusive economic zones (EEZs) of the U.S., Canada, and Russia.  A recent study by the U.S. Geological Survey (USGS) estimated that thirteen percent of the world’s undiscovered oil supply and thirty percent of the world’s undiscovered natural gas may be located under the Arctic Ocean.  Researchers estimated that that area likely contains eighty-three billion barrels of undiscovered oil, which is four percent of the world’s remaining conventional oil and enough to sustain global demand for almost three years.  They estimated that the Arctic contains approximately 1550 trillion cubic feet of natural gas, which is enough to meet world demand for about 14 years.  Most of the Arctic oil and gas fields lie offshore in less than five-hundred meters of water, which means they are accessible to drilling.[8]  So, for the first time in eighty years, Russians have something to protect, other than ideology and vodka.

Russia argued to the United Nations in 2001 that the waters off its northern coast are an extension of its maritime territory, and in 2007 planted a titanium flag on the seabed of the North Pole.  The claim is based on the argument that an underwater feature, in this case, the Lomonosov Ridge, is an extension of the Russian landmass.[9]  The United Nations Convention on the Law of the Sea (UNCLOS) of 1982 grants countries an EEZ of 200 nautical miles beyond their coastline.  The EEZ can be extended where a country can prove that the structure of the continental shelf is similar to the geological structure within its territory.[10]  Russia’s claim has yet to be settled.

In 2009, First Deputy Prime Minister Sergey Ivanov confirmed that Russia’s new maritime strategy would focus on the Arctic.  Strategic priorities would include enhanced coordination between the Navy and commercial shipping companies, and the development of Russia’s Arctic territories.[11]  Later in 2009, President Dmitry Medvedev released a new national security strategy stating specifically that “in a long term perspective the attention of international policy will be focused on access to energy reserves, including on the continental shelf in the Barents Sea and other parts of the Arctic.”[12]  Since then, Russia has initiated planning to exploit resources in this region, especially the Shtokman natural gas deposit, which contains 3.8 trillion cubic meters of natural gas.  The Shtokman field is being developed by a consortium of companies, including Russia’s Gazprom, France’s Total, and Norway’s Statoil.[13]

U.S. policymakers should stay alert.  Russia has clearly stated their strategic intentions in the Arctic.  The U.S. intelligence community must now shift focus to gain greater understanding of what that means from an operational and infrastructural standpoint.  We need to be asking: How will Russia conduct future operations in the Arctic?  Specifically where will they likely build energy infrastructure, and at what pace?  What platforms and capabilities will they likely put in place to carry out those future operations and to defend that infrastructure?  What is the likelihood that they will try to exclude other nations from the Arctic?  And how would they most likely try to do that?  

THREATS OLD AND NEW

Russian policy makers are aware of the relative decline of U.S. military and economic superiority, and they see China as their most significant long-term threat.  According to Russia analyst Dmitry Gorenburg, “Despite occasional hostile rhetoric, Russian leaders recognize that a conflict with NATO is extremely unlikely. Military planners clearly regard China as the most important potential threat to national security – even though great efforts are under way to enhance diplomatic and trade ties with Beijing.”[14]

Russian policy makers see that Beijing has increased military spending by an average of twelve percent per year during the last ten years, with more than a third allocated to the People’s Liberation Army Navy (PLAN).[15]  According to the International Energy Agency, China will double its demand for oil, and quadruple its demand for natural gas during the next twenty-five years.  China owns one percent of the world’s energy resources, yet is currently consuming twenty percent.[16]  Chinese admirals recently told the press they want “warships to escort commercial vessels that are crucial to the country’s economy.”[17]  And, as of early 2011, the PLAN had made eighteen ship deployments to the Gulf of Aden.[18]

Christian Bedford argues that, as China’s economic power continues to grow, they will logically adopt the colonial strategy of their predecessors.  As British, French, Dutch and even U.S. economic power grew, those countries established colonies or outposts across the globe.  As Russia looks on suspiciously, China will act “as would be expected of a rising world power.”[19]  King’s College professor Harsh Pant said, “There is only one kind of great power, and one kind of great power tradition.  China will not be any different; power is necessarily expansionist.  The sooner the world acknowledges this, the better it will be for global stability.”[20]  In other words, in realist fashion, China will protect its access to energy resources as much as Russia will protect its ownership of energy resources.

The Russian State Armaments Program (SAP) for 2011-2020 indicates that the Navy’s operational emphasis will shift from countering U.S. and NATO naval forces towards the protection of Russian economic activity, and that the geographic emphasis will shift to the south and east (which, of course, will overlap with China’s sphere of influence).  According to Gorenburg, the new SAP addresses the following threats:

  • The rise of naval activity by foreign powers, both near Russian borders and in the open seas;
  • The development by foreign states of naval forces more powerful than its own;
  • Illegal economic activity (e.g. poaching) in territorial waters; and
  • The unclear legal status of the Caspian and Azov Seas and the Arctic Ocean – especially the unresolved territorial claims in the Arctic.

The SAP shows that the strategic submarine force will remain a priority.  Five to seven more Borei-class ballistic missile submarines will be commissioned by 2017, two to seven more Yasen-class attack subs, and two to seven more Lada diesel subs will enter service by 2020.  The surface fleet will acquire two Mistral-class amphibious assault ships from France, and three to five Ivan Gren-class landing ships by 2020.  Within the next twenty years, Russia intends to commission ten to twelve new 10,000-ton destroyers, twenty Admiral Gorshkov-class frigates, and twenty Steregushchii-class corvettes.  While the six carriers projected by Admiral Vysotsky are not in the plan, the plan does mention the possible restoration and modernization of several mothballed Kirov and Slava-class Cold War cruisers.[21]

In the years ahead, U.S. policy makers must study and understand the aspirations of the Russian and Chinese governments.  Washington must do its best to understand where those aspirations potentially collide, and how the ripple effects could lead to greater regional or global conflict.  Our intelligence community must be on-the-watch for indications and warnings of conflict between the two.  Our analysts should be developing and comparing competing hypotheses on how the relationship between the two countries may play out in the coming year, the courses of action each are likely to follow, and the best courses of action for our own policy makers.

MONEY TO SPEND

In September 2010, Defense Minister Anatoly Serdyukov announced that total Russian defense spending in the next ten years would equal 19 trillion rubles ($600 billion), an increase to somewhere between 3.5 and four percent of GDP, up from the current 2.9 percent.[22]  Russian GDP is currently $2.2 trillion.  In comparison, U.S. GDP is $14.6 trillion, China $10.1 trillion, Japan $4.3 trillion, India $4.1 trillion, Germany $2.9 trillion, and the United Kingdom $2.2 trillion.[23]  Increasing Russian defense spending to 3.8 percent of GDP means that Russia’s annual military budget will exceed $80 billion per year, which is significantly less than the U.S. and China, but on a par with India, and significantly greater than Germany or the United Kingdom.  These are not small spending numbers.

According to Gorenburg, the increase in funding promised for SAP 2011-2020 may not be sustainable because it depends on the relatively stable and increasing prices for oil and natural gas in the coming years.  The increase in energy prices depend on the global economic recovery.  Gorenburg points out that, even if energy revenue projections are met, Moscow will need to significantly shift government expenditures to defense spending.[24]  On September 15, 2011, the World Bank re-forecasted Russia’s economic growth for 2011 from 4.4 percent to four percent.  The bank also lowered its forecast for Russia’s 2012 GDP from 4.0 to 3.8 percent due to expected falling oil prices.  The downgrade was the result of a worse-than-expected second quarter.  However, the bank emphasized that Russia is still outperforming other developed countries in terms of GDP growth.  Despite falling global demand for goods and commodities, relatively high oil prices and low unemployment level will facilitate sound Russian economic growth as a whole in the second half of 2011.[25]  Bottom line – Despite what alarmists said in 2008-2009, revenues will be available to support a fairly robust defense budget.

So, how about shipbuilding capacity?  Some analysts have pointed to Russia’s lost shipbuilding industry as further proof that the country cannot rebuild and sustain a viable naval fleet.  “Au contraire!” say the Europeans.  Globalism has entirely transformed the world’s defense industry.  Unlike during the Cold War, where defense manufacturing was bi-polarized between NATO and the Soviet Bloc, Russian can now purchase any naval assets they need on the commercial market.  Russia can now focus on purchasing the latest hulls and technologies, rather than maintaining the bricks and mortar of an aging shipbuilding infrastructure that never produced high-quality equipment anyway.  In June 2011, Moscow signed a contract with the French STX shipyard at Saint-Nazaire to build two Mistral-class amphibious assault ships for the Russian fleet.  And, they are currently considering purchasing submarines from Germany.[26]

While they cannot count on the kind of sustained high oil prices necessary to build six carrier fleets, Russia will remain an energy-rich country in a future where demand will exceed supply.  If the Russian Navy is able to meet even some significant percentage of their growth objectives, and European countries continue to build equipment for them, they will remain a formidable adversary.

U.S. policy makers still seem to be in some kind of post-Cold War fog when trying to understand Russian national security aspirations.  This is largely because of Russia’s own evolving strategic emphases.  The fog will start to dissipate as we build a more fact-based estimate of how much money Moscow will have available to spend in the future.  Our analysts should be building a predictive model that will help demystify the relationship between projected oil prices, projected Russian military spending, and projected Russian naval shipbuilding and acquisition.  Ideally, our intelligence community should not be changing their predictions on Russia’s future fleet size (by dozens of hulls) every time the price of a barrel of oil changes by twenty dollars.

THE WORLD TURNED UPSIDE DOWN

Along with exposing nearly a million square miles of Arctic Ocean to energy exploitation, the ice melt is opening an entire new ocean to shipping and naval operations.  In 2007, the Arctic sea ice melted enough that the Northwest Passage above Canada became navigable without the help of an icebreaker for the first time in history.[27]  In the 100 years between 1906 and 2006, only sixty-nine ships, primarily sailed by explorers and scientists, transited the Northwest Passage. Last year, the Canadian government counted a total of twenty-four vessels that transited the Passage.[28]  Likewise, Russia’s Northern Sea Route is being termed the “trans-Arctic Panama Canal”.  In the words of Rear Admiral David Titley, director of the Navy’s task force for climate change, “We are confronted by a new ocean for the first time in 500 years.”[29]

A representative from one of the leading Russian shipping companies recently explained “Just a few weeks ago, the Russian tanker BALTIKA, laden with 70,000 tons of gas condensate, sailed without problems from the Russian port of Murmansk, through the Arctic and on to the Chinese city of Ningbo. Shipping via the polar route is gradually becoming routine. This brings Asia closer to Europe. The route of the MV NORDIC BARENTS, for instance, from the Norwegian port of Kirkenes to China, was shortened by roughly 50 percent. That saved us 15 days at sea.”[30]   According to London analyst Christian Le Mière, “Strategically speaking, the value of an open Arctic lies in the emerging trade routes, and who controls those is key.”[31]

If the ice melt continues at the current rate, in coming decades, Russia will transition from being a mostly landlocked nation to a coastal nation.  Like the U.S., Russia will have a lengthy sea coast.  Like the U.S., Russia will have year-round access to two oceans.  Unlike the U.S., merchant and naval vessels will be able to transit from one ocean to another without leaving coastal waters.  The next generation of Russians will view the Arctic Ocean in the same way that Europeans and Americans today view the Atlantic.  Along with going around the world, shipping will eventually go over the top of the world.

This is a very significant shift.  Historically, Russian policy makers’ have been preoccupied with things west, where they have had little access to the sea, and from where they have been invaded twice.  And they have had to worry constantly about the south – the Balkans, Ukraine, Afghanistan, etc.  Now they will look north.

CONCLUSION

This week, Representative John Boehner said, “In Russia’s use of old tools and old thinking, we see nothing short of an attempt to restore Soviet-style power and influence.”[32]  While Representative Bohner’s statement may be overstated, globalization requires that Russia maintain as formidable a navy as is affordable.  Moscow has a motive to build the fleet – protection of the oil and gas fields of the Arctic, and a Chinese neighbor growing stronger by the year.  They have the means to build the fleet – Energy revenues in a world where demand will continue to outpace supply.  And they have the mindset – Russian Prime Minister Vladimir Putin and President Dmitri Medvedev prove every day that they are staunch realists.

For Russian policy makers today, like yesterday, defense of the homeland is priority one.  The difference today is that economics have replaced ideology, and the homeland now extends north into the Arctic Ocean.  But, more important than anything else is the Kremlin’s new map.  Throughout the history of the world, discoveries of new oceans have inevitably resulted in the transformation of civilizations.  In the coming decades, the world will turn upside down in Russia’s favor.  Russian coastal cities will look north on a warming ocean that will be a far busier place.  Like policy makers in Moscow, Russian school children will likely have a very different world map hanging in the front of the classroom.

Copyright 2012:  Daniel T. Murphy


[1]  Reuben F. Johnson, “The Fleet That Has To Die: The Russian Navy’s Irreversible Collapse,” The Weekly Standard, July 15, 2009.

[2]  Milan Vego, “The Russian Navy Revitalized: Russia will use sea power in its quest for greater world influence,” Armed Forces Journal, April 2009, page 1.

[3] Johnson.

[4]  Dmitry Gorenburg, “Russian Military Reform: Tracking developments in the Russian military” (blog), www.wordpress.com, November 5, 2009.

[5] “Crude Oil Price Forecast,” The Financial Forecast Center, October 18, 2011.

[6]  For example, Iraq’s federal budget is ninety-five percent dependent on oil revenues, and Baghdad has based its 2012 budget on a projected $85 per barrel.  See “Iraq’s proposed 2012 budget based on $85 oil price,” Arab News, May 27, 2011.

[7]  “Arctic ice at second-lowest extent since 1979,” Discover Magazine, September 21, 2011.

[8] Jackie Grom, “Arctic May Boost Oil and Gas Reserves,” Science Magazine, May 28, 2009.

[9] “Russia plants flag under North Pole,” BBC News, August 2, 2007.

[10]  The United Nations Convention on the Law of the Sea (UNCLOS), Part 5, Article 57, 1982.

[11]  New Russian Maritime Strategy highlights Arctic, www.BarentsObserver.com, February 5, 2009.

[12]   The fundamentals of state policy of the Russian Federation in the Arctic in the period up to 2020 and beyond, (Osnovy gosudarstvennoi politiki Rossiiskoi Federatsii v Arktike na period do 2020 goda i dalneishuiu perspektivu), Russian Security Council, March 2009 (translated by Katarzyna Zysk, www.geopoliticsnorth.org).

[13] Gorenburg(blog), March 14, 2011.

[14] Gorenburg (blog), May 23, 2011.

[15] Andrew Higgins, “China Flexes Muscles in Disputed Waters,” The Seattle Times, September 19, 2011.  See also Edward Wong, “Chinese Military Seeks to Extend Its Naval Power,” The New York Times, New York NY, April 23, 2010.

[16] Higgins 2011.

[17] Edward Wong, “Chinese Military Seeks to Extend Its Naval Power,” The New York Times, New York NY, April 23, 2010.

[18] Alexander Nicoli, “China’s Three-Point Naval Strategy,” IISS Strategic Comments, International Institute for Strategic Studies, Washington, DC, Volume 16, October 2010.

[19] Christian Bedford, “String of Pearls: China’s Maritime Strategy in India’s Backyard,” Canadian Naval Review, Volume 4, Number 4, Winter 2009, pages 1-2.

[20] Harsh V. Pant, “China’s Naval Expansion in the Indian Ocean and India-China Rivalry,” The Asia-Pacific Journal, April 18, 2010, page 4. James R. Holmes, “How to Track China’s Naval Dreams,” The Diplomat, May 31, 2011.

[21] Dmitry Gorenburg, “Russia’s State Armaments Program 2020: Is the Third Time the Charm for Military Modernization?” PONARS Eurasia Policy Memo, No. 125, 2010, pages 3-4.

[22]  Gorenburg, “Russia’s State Armaments Program 2020,” page 2.

[23] CIA World Factbook.

[24]  Gorenburg, “Russia’s State Armaments Program 2020,” page 5.

[25] Yamei Wang, “World Bank lowers Russia’s economic growth forecast,” English.news.cn, Xinhua News Agency, September 15, 2011.

[26]  “Russia signs contract to buy two Mistral-class BPCs,” Aviation Week (blog), June 17, 2011.

[27] “Arctic ice at second-lowest extent since 1979,” Discover Magazine, September 21, 2011.

[28]  Christoph Seidler and Gerald Traufetter, “Melting of Arctic Ice Opening up New Routes to Asia,” Der Spiegel, September 27, 2010.

[29] Geoff Ziezulewicz, “Amid melting ice, Navy assesses strategic demands in Arctic,” Stars and Stripes, August 17, 2011.

[30]  Seidler and Traufetter

[31]  Geoff Ziezulewicz

[32]  “Boehner Says Russia Trying to Restore Soviet-Style Power,” http://www.myfox.com, October 25,2011.

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