A study of the actors and institutions that shaped decision-making on privatization in the Russian oil industry between 1992 and 2006. The book analyses the origins of privatization as a policy on a macro, industry-wide level, as well as presenting three in-depth case studies of privatization on a company level.

One of the dominant export-oriented industries in Russia, oil is a major source of tax revenue and wealth. The privatization of these vast assets has made the industry a site not only for conflict between power holders but also a strategic target for international corporations and Western governments. In this thoughtful analysis, a group of international specialists explores the political and economic issues and controversies surrounding the oil industry's move to capitalism. The authors examine the spread of crime and corruption, the role of Russian and Western financial institutions, regional tensions, and the international dimension. As a paradigm for the Russian economy as a whole, the case of oil industry provides invaluable insights for understanding the political and economic problems confronting Russia today.

The Russian oil industry has long been one of the most prominent and valuable oil sectors in the world. Under the Soviet Union, the oil industry was subject to tight state control. Prices and production targets were determined by political leaders in Moscow, not market signals. The 1995 industry privatization after the collapse of the Soviet Union resulted in many industry assets being auction at extremely discounted prices to a few connected businessmen. Some of the new oil company owners quickly invited Western companies to partner in Russian plays. The differences in Western business culture, oilfield operations, and profit-seeking behavior created tremendous resentment among the rank-in-file Soviet-era oilmen. They, along with conservatives, believed their skepticism of Western involvement was vindicated by a devastating Russian recession in the late 1990s. This economic crisis paved the way for Vladimir Putin’s election in 2000. A former intelligence officer with a desire to reassert Russian influence on the global stage, Putin quickly sought to recapture state control of the oil sector. By the end of his first term in 2004, Putin had orchestrated the fall of the most prominent oligarch, Mikhail Khodorkovsky, and his oil company Yukos, funneling its most valuable assets into a new state oil champion, Rosneft. The path of the Russian oil industry from fully state-owned enterprises to private companies and back to falling under heavy state influence underscores the importance of oil as a resource to the Russian state and, most importantly, how the long history of strong, autocratic governance in Russia affected its relationship with foreigners, served as the impetus for renationalization in the 2000s, and continues to influence the Kremlin’s view that Russia’s energy industry is, first and foremost, a tool of the state.

In 1991, a small group of Russians emerged from the collapse of the Soviet Union and enjoyed one of the greatest transfers of wealth ever seen, claiming ownership of some of the most valuable petroleum, natural gas and metal deposits in the world. By 1997, five of those individuals were on Forbes Magazine's list of the world's richest billionaires.

A Foreign Affairs Best Book of the Year on Eastern Europe and the Former Soviet Republics The Russian oil industry—which vies with Saudi Arabia as the world’s largest producer and exporter of oil, providing nearly 12 percent of the global supply—is facing mounting problems that could send shock waves through the Russian economy and worldwide. Wheel of Fortune provides an authoritative account of this vital industry from the last years of communism to its uncertain future. Tracking the interdependence among Russia’s oil industry, politics, and economy, Thane Gustafson shows how the stakes extend beyond international energy security to include the potential threat of a destabilized Russia. “Few have studied the Russian oil and gas industry longer or with a broader political perspective than Gustafson. The result is this superb book, which is not merely a fascinating, subtle history of the industry since the Soviet Union’s collapse but also the single most revealing work on Russian politics and economics published in the last several years.” —Robert Legvold, Foreign Affairs “The history of Russia’s oil industry since the collapse of communism is the history of the country itself. There can be few better guides to this terrain than Thane Gustafson.” —Neil Buckley, Financial Times

Governments that privatize state industries often retain control over key distribution assets. While there are many examples of this form of partial privatization, to our knowledge there are no substantial quantitative studies of how governments use their control under these circumstances. In this paper we argue that the Russian government privatization of the oil sector during 1994-2003 is a useful case study because the federal government privatized oil production but retained monopoly control rights over the transport of crude onto world markets. Based on a simple analysis of the costs and benefits of control and ownership, we argue that that in these circumstances the federal government would use its control over transport capacity to provide privileged access to those companies over which it has influence. We find that in 2003 this is indeed the case and that this system detracted from economic efficiency. In particular, private and regionally owned companies had to be much more productive than companies over which the federal government (the state) had influence to receive comparable access to world markets; state-influence companies had preferential access to routes with more capacity; and, the allocation of route capacity was sensitive to transport costs only in the state-influence sector.