Oil in Chechnya: A Brief History

The first reports of oil deposits in Chechnya surfaced in the writings of travelers who noted streams of a peculiar black substance gushing out from under the ground in some parts of Chechnya that nearby villagers used as lubricant. As early as in the late nineteenth century, after Russia’s conquest of Chechnya, small-scale home-based oil production was already underway, and in 1893 the first commercial oil well was commissioned in the north Grozny suburb of Starye Promysla.

Prior to the Soviets’ rise to power, the oilfields in Chechnya were developed by Belgian, British, German, Russian, Chechen and Azeri firms. After the Bolshevik nationalization, it took fifteen years to restore the production volume back to the levels of the early twentieth century levels. By the beginning of World War II, Checheno-Ingushetia produced approximately 4 million tons of high-quality crude oil annually, a prize that lured Hitler in his pursuit of control over the Grozny and Baku oil reserves.

Grozny’s refining industry reached its peak in 1971, when its three refineries processed 21.3 million tons of crude (over 7 percent of Russia’s total production), which includes a portion of the Baku oil fields’ output in addition to the local production. Yet after the upgrade of the Baku refineries and the construction of new facilities elsewhere in the USSR, the output of Chechnya’s refineries began to decline: by 1980, the oil production levels in Checheno-Ingushetia shrank to 7.4 million tons, and by 1985—to 5.3 million tons (Strana.ru, March 25). The reduction also triggered the first massive wave of migration of ethnic Russians, who left Chechnya primarily to resettle in the new oil-producing regions in Urengoi, Tyumen and others.

Nevertheless, during the period of the Soviet Union, Chechnya became home to a highly developed petroleum industry infrastructure. The complex included 54 facilities, a specialized university-level educational establishment (the Oil Institute named after Academy of Sciences Member Dr. Mikhail D. Millionschikov), a research and development entity and three refineries that employed tens of thousands of people, including highly qualified manpower (www.nefte.ru/person/mbaz5.htm).

Before World War II, Chechnya had three large refining facilities—the Lenin refinery that handled primary oil processing, the Anisimov refinery for sour crude and the Sheripov plant designed for primary processing and straight petroleum products. These facilities had a maximum aggregate capacity of up to 20 million tons of Chechen and Kazakhstani crude. The presence of three different types of refineries ensured the capability to process virtually any type of crude, and this critical asset made them a choice nugget for those who wanted to acquire control over them during the collapse of the USSR. The shortsighted policies of the Chechen leadership forced Russia to search for alternative scenarios, and pipeline routes bypassing Chechnya for the transport of oil produced in Russia and Azerbaijan built after the first Chechen war.

Oil deposits in Chechnya are found at shallow depths (as little as 5 to 6 meters below the surface), which often leads to oil spurting or seeping into the soil and resulting in contamination. In some parts of Chechnya, the topsoil became oversaturated with oil; in some locations petroleum products have infiltrated the earth over 2 meters deep and the water table at depths of up to 250 meters contains as much as 15 times the maximum allowable concentrations of oil products (“The Chechen Republic: Economic Potential and Strategic Development,” LKI Publishing, Moscow 2007).

This close proximity of oil deposits to the surface in Chechnya prompted the mushrooming of private businesses churning out petroleum products. These businesses quickly came to dominate the Chechen markets, given that they priced oil two to three times cheaper than what was sold by state-owned producers based elsewhere in Russia. According to the federal Interior Ministry, even during the warfare in Chechnya, 500,000 to 700,000 tons of were stolen in Chechnya every year and up to 30,000 people were involved in illegal oil production (Prague Watchdog, November 7, 2003). During the first Chechen war, this author accompanied a British delegation on a visit to Chechnya, and one of the delegation members requested a stop to see how Chechens were making petrol out of crude oil using simple home-based methods. After a long look, the member of the British House of Lords said: “Yes, I see that this is true; but it can’t possibly be so simple.” Chechen resourcefulness stripped sophisticated oil-refining technology down to its bare bones.

It therefore comes as no surprise that the current government of Chechnya expected Moscow to rebuild Chechen refineries, so the news of the plan to build a new oil refinery in Kabardino-Balkaria (Chechnya Weekly, April 8) came as something of a shock. The speaker of the Chechen parliament described this development as “a manifestation of an insulting policy toward the entire Chechen people” (Regnum, March 12). The deputies representing Chechnya in the Russian parliament produced a joint statement expressing their dismay over this project (Nohchi.vu, March 19). The most intriguing part was that even Chechnya’s human rights ombudsman took it upon himself to make an official statement protesting the construction of an oil refinery in the nearby republic, even though this has little to do with the issue of human rights in Chechnya (Novoteka.ru, March 14).

Prime Minister Odes Baisultanov was urgently dispatched to Moscow to start negotiations, and the state oil company Rosneft permitted him to present a feasibility study in support of building a refinery in Chechnya (Vesti Respubliki, #23, March 21). Yet while the Chechen government tried to present this development as a resounding victory, the final decision will be made by Moscow without any input from Grozny. Chechen President Ramzan Kadyrov took things one-step further when he announced in a televised statement that he spoke to the president of Kabardino-Balkaria, Arsen Kanokov, and warned him not to get his hopes up because the Chechen government would do everything in its power to make sure the site of the proposed refinery was moved to Chechnya. The report made no mention of a response from Kanokov, yet the manner in which the presidents of two North Caucasus regions chose to communicate is certainly of great interest.

The main form of legal employment in Chechnya today makes use of the remnants of the petroleum refining industry. Nonetheless, after the intense warfare in Grozny and its environs in 1999 and 2000, these remnants do not amount to much. During the first military campaign of 1994-1996, the Russian army avoided striking the petroleum industry sites; however, all three refineries, along with a petrochemical plant and all auxiliary structures located in Grozny and its suburbs, were the first targets during the second war in 1999, including a plant located outside of the conflict zone 20 kilometers north of the capital.

The objectives of the struggle for power tend to shift as time goes on: prior to the start of his presidency, Ramzan Kadyrov made no demands of Russia and claimed that the Chechens were fully capable of solving their own problems. Although Kadyrov asked neither for independence nor for a free economic zone, his statements were purely a political ploy designed to convince Moscow of his unadulterated loyalty (Komsomolskaya Pravda, February 21, 2007). That was then; today, there is no doubt that Ramzan Kadyrov does indeed need the oil, sovereignty and a free economic zone. In a meeting with the Russian president’s envoy to the Southern Federal District, Grigory Rapota (successor to Dmitry Kozak, who left this job for a government position), during Rapota’s recent two-day official inspection visit to Chechnya, Kadyrov decided he could wait no longer and made an official request to consider establishing a special-status port economic zone in Chechnya (Kavkaz.memo.ru, April 10, 2007; Chechnya Weekly, April 10).

Kadyrov is not satisfied with being a vassal indefinitely: his ambitions are expanding in proportion to his need for more and more money for his projects. In all likelihood, his main demand is still to come, and it will come at a time when he feels capable of giving Moscow an ultimatum. It may not happen today or tomorrow; however, as soon as he realizes that his support base is declining and his position is no longer secure, he is quite likely to play the ultimate stakes.