International Politics and Oil Trade: Evidence from Russian Firms
Abstract: It is widely argued that oil exporters could use their natural resources as a weapon to punish adversaries and reward allies. Yet empirical analysis of these claims has been elusive due to lack of data. Using a novel dataset on Russian companies’ oil exports over 1999–2011, we show that a decline in relations between Russia and another country, measured by divergence in their United Nations General Assembly (UNGA) voting patterns, considerably reduces the value of Russian oil exports to that country. The effect is more pronounced for state-owned companies. A deterioration in political relations and associated decrease in oil exports are costly for Russian companies. They experience a decline in profitability following a breakdown in political relations between Russia and those companies’ main export destination countries. Finally, we show that a deterioration in political relations with Russia is costly for the countries importing oil from Russia as their total oil imports decline, suggesting that, at least in the short run, it is costly for these countries to find close substitute for Russian oil. Notably, such adverse effect of political relations on oil importers is pretty recent phenomenon observed over 2000-2011, which coincide with the rise of Vladimir Putin to power, such patterns are absent in the earlier 1992-1999 period.