Russia is one of the top crude oil producers in the world, alongside Saudi Arabia. Russia’s oil taxation is responsible for over 50% of it’s federal budget, a significant portion of its economic flexibility (Aleksashenko, 2016). As a result, when the price of oil barrels began plummeting at the end of 2014, and eventually sinking to rock bottom by the end of 2015, Russia’s economic forecast was looking grim, and the people, even more so– the people were beginning to lose faith in Russia’s economic stability and growth (Krauss, 2016). Russia was continuing to produce massive amounts of crude oil despite the speculation of many analysts that it would deplete its reserves, if oil production rates remained the same (Gusovsky, 2016). However, Russia had entered a standoff, one that would affect the entire global economy. When Saudi Arabia, the other top crude oil producer in the world didn’t appear to be slowing down its oil production rates either, some sort of compromise had to be made before Russia’s economy continued to vastly decline (Gusovsky, 2016). The big challenge here was the geopolitics that are inherently involved. Would Russia cooperate with Saudi Arabia despite staunch differences in views on energy policy and terrorism (Pakhomov, 2016)? Despite these vastly differing stances, Russia and Saudi Arabia were able to enter an agreement on oil production cuts, effectively forecasting an improvement for the Russian economy (Lian et al., 2016). Russia’s cooperation with Saudi Arabia has proven to be an effective decision, one that is supported by the cultural dimensions of Uncertainty Avoidance, Long-term Orientation and models of a non-zero sum game.
Hofstede (n.d) describes Uncertainty Avoidance as the way in which a society behaves and prepares for uncertainty in the future, but most importantly, it describes the societal perception of threat due to ambiguity. Russia scores a 95 in Uncertainty Avoidance, effectively making them a country with one the highest scores in this cultural dimension (Hofstede, n.d). Hofstede (n.d) also states that Russia has established one of the most complex bureaucracies in the world; allocate extensive background information prior to negotiations; prefer formality and an appearance of being distant when interacting with strangers. With Russia’s high Uncertainty Avoidance, it’s no surprise that dealing with Saudi Arabia was a complex task. How do you deal with a country that has open relations with jihadist groups in Syria (Pakhomov, 2016)? Though one thing was certain– Russia’s oil prices needed to stabilize and Saudi Arabia was interested in improving its overall market position outside of oil production (Pakhomov, 2016). Russia kept most global analysts guessing for a while– were they going to put a halt to oil productions or are they just bluffing (Gusovsky, 2016)?
Despite the differences between Russia and Saudi Arabia on these geopolitical stances, Russia’s identity of high Long Term Orientation was evident, when in early September of 2016, Russia made an agreement with Saudi Arabia to cooperate in lowering oil production rates, forecasting an improvement for Russia’s economy as well as the global economy (Defterios & Riley, 2016). Hofstede (n.d) explains that high Long Term Orientation scores represent a society that possesses a pragmatic mindset. A pragmatic society demonstrates adaptability based on changing conditions and situations, and the perseverance in achieving results (Hofstede, n.d). Results were markedly visible when Russia’s decision to cooperate with Saudi Arabia boosted oil pries from a low of $27 to a stable $50 (Lian et al., 2016). However, Russia’s decision to cooperate has had greater influence than original anticipations could have foreseen. On November 30th, OPEC members had made a pledge to remove 1.2 million barrels per day from global oil productions with the cooperation of non-OPEC countries like Russia (The Economist, 2016). These combined efforts would yield nearly a 2% global production cut, revitalizing public faith in OPEC (The Economist, 2016). These global oil production cuts would improve overall oil prices and it is likely that these results wouldn’t have been possible without Russia. Their pragmatic approach and high Long Term Orientation identity had made a global impact.
Russia, along with Saudi Arabia and other top oil producers were playing a non-zero sum game. By definition, a non-zero sum game involves two or more players (in this case, two or more countries) to either cooperate for a win/win scenario or the failure to cooperate for a lose/lose scenario (Wright, 2000) . In our example, Russia and Saudi Arabia are the big players of the game (along with many other smaller players) and the less competition they have, the more profitable they are in their own rights because of their ability to control market price. If Russia continued about extremely high oil production rates, competing crude oil producers would need to match high oil production rates to prevent Russia from controlling the market, outright. Though, because of limited supply and demand, low and competitive prices would impact the profitability of all the involved countries in their ability to maintain higher market prices. If however, the oil producers involved were to find a balance on lowering prices based on current supply and demand, profitability would be maximized across all participants– an inherently difficult task as history has shown us. Cooperation is never an easy task when individuals stand to gain more at the expense of another. However, in recent events, Russia has demonstrated their pragmatic ability in accordance with their Long-term Orientation and Uncertainty Avoidance, effectively improving both the individual and global markets.
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Thank you for sharing this blog post Johnathan. I did my global leadership paper on Russia and found this post very helpful. I learned so much from researching and writing a paper on a country I was so unfamiliar with. It seems you too have learned a great deal about Russia and its ability to influence the global market. I agree with you that Russia is able to make a huge impact on the global market and a country of such size and power can and should do everything they can to keep that positive influence.