Introduction
In a relatively short period of time, the oil-rich states developed from third world
countries into the most prosperous countries in the world. From the 1950s onwards,
world oil consumption grew fivefold, launching the golden age of oil. Since world oil
demand is mostly covered by the Gulf States, the overall oil price can be increased by
mutual agreements to reduce oil production. The advantage of partly determining the oil
price creates a significant dependency on the oil-importing countries. Moreover, high
prices and lower supplies cause immeasurable world tension and major conflicts.
Oil-importing countries try to minimize their dependence on the Organization of
the Petroleum Exporting Countries (OPEC) and seek to diversify their energy portfolios.
Russia attracted marked interest as an alternative oil and gas supplier in recent years. By
increasing production and enhancing technology, Russia strives to satisfy the world
demand. Russia recognizes the value of energy exports and uses energy as a strategic
asset to exert political influence in West European countries. However, nearly half of
Russian government revenue is engendered by energy export from the European Union.
According to Suetla (2005), common interests allow a situation of mutual
interdependence to occur in the energy sector.
The aim of the paper is to analyze the Russian oil and gas market, and to assess
whether high observed degrees of energy exports indicate a positive correlation with the
increased GDP and government revenue. Throughout this paper we additionally examine
the existing trade level between the Russian Federation and the West European countries,
combined with the understanding that the current degree of economic interdependence
can lead to deeper integration between EU and Russia.
The remainder of the paper is organized as follows. Section 1 introduces the
current situation on the world energy market and rising interest in Russia, as one of the
few non-OPEC energy suppliers. Section 2 gives an orientation of trade relations between
Russia and the European Union, and current investment situation. Recent discussions on
the energy strategies are presented in section 3. In the fourth section, theories related to
energy policies are introduced. Grubel-Lloyd index is applied to analyze intra-industry
trade and the strange phenomenon of the Dutch disease is presented. Energy trade
policies are covered in section 5. Special attention is drawn on the subsection ‘External
influence’, where regression models are used to examine the effect of oil exports on
government revenues and oil prices on GDP. Section 6 deals with integration between
Russia and the EU. The paper concludes with discussion on the significance of the results 2
and Russia’s future energy policies. Appendix 1 gives an indication of the major oil
movements worldwide. An overview of oil and gas pipeline infrastructure in the Former
Soviet Union is shown in Appendix 2. Statistics for the multiple regression models can be
found in Appendix