Handover of Oil Assets to Chechen Authorities: Start of Devolution of Power in Russia?

Chechnya is gearing up to establish control over its oil-extracting business. The procedure for handing over the Rosneft affiliate Chechenneftekhimprom to the Chechen authorities is expected to be completed in March. For the first time in many years, Grozny is close to acquiring full control over the oil business in the republic. Chechnya’s governor, Ramzan Kadyrov, appears to have outsmarted the giant Russian state oil company Rosneft and its head, Igor Sechin, who is reportedly a close associate of President Vladimir Putin. The Chechen authorities accused Rosneft of failing to invest in oil extraction and refining and vow to revive the republic’s oil sector (Onkavkaz.com, February 18).

Sources close to the Chechen leadership have said Kadyrov intends to force Sechin to rid Rosneft of all its remaining assets in the republic. Low oil prices and the existence of prospective oil fields in Siberia make doing so quite profitable for Rosneft. Oil extraction in Chechnya started long ago and many of its oil fields have been exhausted, while deeper oil fields require greater investment to exploit—something Rosneft apparently did not want to do. Oil extraction in Chechnya was a small fraction—0.23 percent—of Rosneft’s total. Despite the impracticality of controlling oil extraction in Chechnya, the political symbolism of handing over the assets to the republic is quite significant. The republic’s oil business was one of the main flashpoints in Russian-Chechen relations during the past 25 years. The Chechen quest for independence from Russia in the 1990s was partly based on its oil reserves and oil refineries. Prior to the second Russian-Chechen war of 1999–2000, the republic’s three oil refineries could jointly process 20 million tons of oil per year. Chechnya’s oil-processing enterprises accounted for 6 percent of Russian gasoline and up to 90 percent of the oil products for the country’s aviation industry. After Russian forces levelled the Chechen oil industry and established control over the republic, Moscow started investing in the oil industry in Chechnya in an effort to rebuild its war-torn economy (Meduza.io, February 16). Now, the Chechen authorities are set to take control over what is left of the oil industry once again, this time with the approval of Moscow.

Handing over the oil industry in Chechnya to the regional authorities is not merely an economic question, but also a major political one. The Russian opposition has accused the Chechen leadership of masterminding the murder of prominent Russian opposition politician Boris Nemtsov, in Moscow, in February 2015. Since then, Kadyrov has made a number of controversial statements that put him at odds with large parts of Russian society, which may dislike the Russian opposition, but tends to dislike ethnic non-Russians even more. Some Russian analysts see a struggle going on between the Russian security services and Kadyrov, with the former having appealed to Putin to let them remove Kadyrov from power, to no avail (Newrezume.org, February 17). Instead of removing Kadyrov from power, or at least somehow undermining his authority, the Kremlin announced that it is handing over critical assets to the Chechen government. Is it a sign of devolution of power from the center to the periphery in Russia or a local victory for Kadyrov?

Russia’s economic downturn is evidently taking a toll on Moscow’s centralizing efforts in the country. The central government has already had to rewrite the budget for 2016, because it was drafted based on the assumption that the average oil price would be $50 dollars per barrel—$35 per barrel as the worst scenario. However, oil prices have dropped to $30 and lower since the beginning of 2016 (Vedomosti, January 11).

Moscow will soon have no money to send to Chechnya or the rest of the North Caucasus, meaning that it will have to drastically reduce government subsidies. Hence, the Kremlin may be trying other ways of sustaining the region in an effort to keep the local elites happy. This particularly applies to the Chechen Republic, which on the one hand still lacks the necessary tools to sustain itself but on the other hand has substantial armed forces that have to be provided for in order to ensure they remain under control. Handing over the oil industry to Grozny appears to be a way to appease the republican elites and is simultaneously a sign of approval for Ramzan Kadyrov. As the next step, Moscow will likely have to expand its accommodations for Kadyrov’s government. Perhaps more important is the significance of this move for the other North Caucasus republics, particularly its implications for neighboring Dagestan. Dagestan reportedly has substantial oil and gas deposits that its officials are not allowed to touch without Moscow’s approval. The devolution of power is likely to accelerate further if the leadership of Russia changes. But even with Putin in charge, it seems that regionalization of the country is slowly taking place; and the possibility that Chechnya could regain control over its energy resources has enormous implications for the rest of the North Caucasus.