Russian Natural Gas Monopoly Gazprom Falls Far

Articles — By forcechange on December 29, 2008 5:22 pm

From the NY Times:

A year ago, Gazprom, the Russian natural gas monopoly, aspired to be the largest corporation in the world. Buoyed by high oil prices and political backing from the Kremlin, it had already achieved third place judging by market capitalization, behind Exxon Mobil and General Electric.

Today, Gazprom is deep in debt and negotiating a government bailout. Its market cap, the total value of all the company’s shares, has fallen 76 percent since the beginning of the year. Instead of becoming the world’s largest company, it has tumbled to 35th place. And while bailouts are increasingly common, none of Gazprom’s big private sector competitors in the West is looking for one.

That Russia’s largest state-run energy company needs a bailout so soon after oil hit record highs last summer is a telling postscript to a turbulent period. Once the emblem of the pride and the menace of a resurgent Russia, Gazprom has become a symbol of this oil state’s rapid economic decline.

As oil prices rose, so did their stocks. But rather than investing sufficiently in drilling and exploration, Russia’s president at the time, Vladimir V. Putin, used them to pursue his agenda of regaining public control over the oil fields, and much of private industry beyond.

However, to be clear, it is not the financial decline of Gazprom itself that we think is a good thing.  Instead, it is the weakening of a primary tool of geopolitical leverage and abuse that the Kremlin has turned Gazprom into in recent years.  Natural gas and oil companies have all the right in the world to exist, but when they become tools for geopolitical aspirations, it changes the calculus.