Kremlin Stringing Kadyrov Along on Oil

by Gordon M. Hahn

Chechen President and strongman Ramzan Kadyrov recently may have finally won long-sought concessions from Moscow in oil related industries, something he has been fighting to attain from RosNeft since he came to power in the once war-torn North Caucasus republic in early 2008. In November 2009, Kadyrov and Sergei Bogdanchikov, then head of RosNeft, Russia’s state oil giant, wrested from oligarch Mikhail Khodorkovskii after his arrest in 2003, agreed RosNeft would build a refinery along with its Chechen affiliate ‘ChechenNeftKhimProm’ or ChNKhP (https://regnum.ru/news/1236098.html). However, RosNeft repeatedly failed to come through on beginning construction, and economically this might have made sense as most of the investment would have come from Moscow. 

For example, ChNKhP yielded a profit of just 44 million rubles ($600,000) in 2014. The company, which holds Chechnya’s oil-refining and petrochemical industry assets, reportedly owns two oil refineries, oil storage facilities, and equipment repair workshops. It does explore for or extract oil, which another RosNeft affiliate, the 51 percent RosNeft-owned and 49 percent Chechnya-owned ‘GrozNefteGaz’ (www.rferl.org/a/caucasus-report-chechnya-oil-refinery/27472661.html?utm_source=CGI+Daily+Russia+Brief&utm_campaign=84c947e753-EMAIL_CAMPAIGN_2017_04_20&utm_medium=email&utm_term=0_814a2b3260-84c947e753-281712945&mc_cid=84c947e753&mc_eid=f4aac5f16f).

Initially, Kadyrov’s government wanted to transform CNKhP properties into a lithium-ion battery factory under a December 2014 contract with the South Korean company, Kokam (www.kavkaz-uzel.eu/articles/253870/). But Grozny then changed plans saying it would seek to add to ChNKhP an oil refinery with an annual capacity of 1 million tons (www.chechnya.gov.ru/page.php?r=126&id=17443). Bogdanchikov’s successor, Igor Sechin, rejected the project in December 2013. In a 3 December 2015 letter to Putin, Kadyrov criticized RosNeft’s supposed ineffective use of ChNKhP’s land and infrastructure and requested its transfer from federal to Chechen control (www.kommersant.ru/doc/2884197).

Finally in December 2015 Putin agreed, after years of pressure from Kadyrov, that RosNeft should handover to Chechnya a majority share stake in ‘ChNKhP,’ which was scheduled for privatization last year, something the Russian federal budget needed badly after the economic slowdown. Moreover, Russian National Energy Security Fund expert Igor Yushkov estimates Chechnya’s GrozNeft would have to yield 5 million tons of crude to supply a refinery with the proposed future ChechenNeftKhimProm capacity (www.kavkaz-uzel.eu/articles/275007/). In 2014, however, Chechnya’s GrozNeft produced a mere 448,080 tons (www.kavkaz-uzel.eu/articles/274902/).

Kadyrov’s demands appear even less rational in economic terms when one considers that last year the Vietnamese state oil company Petro Vietnam was prepared to invest $150-300 million in the Daghestan State Oil and Gas Company located in Chechnya’s neighboring North Caucasus republic of Dagestan to build a much larger refinery with an annual capacity of 6 million tons as well as other infrastructure (http://izvestia.ru/news/591907). 

This may explain why, according to Kadyrov’s complaints, the Russian government under Prime Minister Dmitrii Medvedev by April 2016 had still not finalized the transfer of ChNKhP to the region. In response, RosNeft proposed to Putin that a different property transfer scheme should take place whereby Chechnya would receive a controlling stake in GrozNefteGaz and other properties of RosNeft for a price of R12.5 billion (www.rbc.ru/business/19/04/2017/58f790589a79470039857b52?from=newsfeed). Kadyrov responded in march of this year that RosNeft had overpriced its assets, was not fulfilling its promises to Chechnya to build a refinery after Chechnya had devoted land and construction of infrastructure for the project, and referring to Sechin noted: “A new leader arrived at RosNeft and froze the entire theme. Such an attitude towards us is an unjust attitude, and we will get justice (http://rbc.ru/business/30/03/2017/58dd00469a794728782e107c).

More recently, it was announced on April 19th that Sechin had agreed with Kadyrov to make large-scale investments in Chechnya’s oil industry, including building housing for workers at RosNeft’s affiliate in the republic ‘GrozNeftGaz’ (www.rbc.ru/business/19/04/2017/58f790589a79470039857b52?from=newsfeed )

Russia’s National Strategy Institute president Mikhail Remizov noted the greater political element in the Kadyrov’s motives and the Kremlin’s concessions on such matters a few years, stating “the price of Kadyrov’s loyalty to Moscow has risen” (www.kavkaz-uzel.eu/articles/275007/).

However, the vagueness of the proposed ‘agreement’ and the past history of Chechen-Kremlin relations suggests either that the Kremlin — unwilling to handover a chunk of Russia’s lucrative oil empire — has been and still is stringing Kadyrov along in fear that an open rejection could set the violent leader off against Moscow, or that it is paralyzed into inaction by internal power squabbles over the assets. The former is likely the case. Kadyrov wields his own army and police forces essentially and can pose a threat to Moscow that the Imarat Kavkaz (Caucasus Emirate) or even the Islamic State affiliate in Russia’s North Caucasus, the Vilaiyat Kavkaz of the Islamskogo Gosudarstva (Caucasus Governate of the Islamic State) ever have. Look for Moscow to continue to string Kadyrov along or for a major showdown between the Kremlin and Grozny. Moscow has no other choices, unless it wants to let Chechnya secede, opening up whole can of other worms for the fate of the federation. In a forthcoming article I will offer an analysis of Kadyrov’s harsh regime, Chechens’ equally harsh sociopolitical culture, Chechnya’s quasi-independence from Russia, and their implications for Russia’s politics and pseudo-federative state.

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About the Author – Gordon M. Hahn, Ph.D., is an Analyst and Advisory Board Member at Geostrategic Forecasting Corporation (Chicago), http://www.geostrategicforecasting.com; member of the Executive Advisory Board at the American Institute of Geostrategy (AIGEO) (Los Angeles), http://www.aigeo.org; Contributing Expert for Russia Direct, russia-direct.org; Senior Researcher at the Center for Terrorism and Intelligence Studies (CETIS), Akribis Group, San Jose, California; and an Analyst and Consultant for Russia – Other Points of View (San Mateo, California), www.russiaotherpointsofview.com.

Dr. Hahn is the author of the forthcoming book from McFarland Publishers Ukraine Over the Edge: Russia, the West, and the ‘New Cold War. Previously, he has authored three well-received books: The Caucasus Emirate Mujahedin: Global Jihadism in Russia’s North Caucasus and Beyond (McFarland Publishers, 2014), Russia’s Islamic Threat (Yale University Press, 2007), and Russia’s Revolution From Above: Reform, Transition and Revolution in the Fall of the Soviet Communist Regime, 1985-2000 (Transaction Publishers, 2002). He also has published numerous think tank reports, academic articles, analyses, and commentaries in both English and Russian language media.

Dr. Hahn also has taught at Boston, American, Stanford, San Jose State, and San Francisco State Universities and as a Fulbright Scholar at Saint Petersburg State University, Russia and has been a senior associate and visiting fellow at the Center for Strategic and International Studies, the Kennan Institute in Washington DC, and the Hoover Institution.

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About Gordon M. Hahn