Rising Giant - Russia

There is only one joy for us,
And this is all we need,
To wash our faces in the new oil,
Of the drilling rig.

Little wonder Russians are toasting oil: These are boom times. Global oil prices have increased tenfold since 1998, and Russia has pulled ahead of Saudi Arabia as the world's top crude oil producer. The Kremlin's budget now overflows with funds for new schools, roads, and national defense projects, and Moscow's nouveau riche are plunking down millions of dollars for mansion-scale "dachas." Oilers' Day, an annual holiday, honoring the hard labor of the oil workers, is perhaps celebrated only in this part of the world. The pumping heart of the boom is western Siberia's boggy oil fields, which produce around 70 percent of Russia's oil—some seven million barrels a day.

But the opportunity presented by oil could slip through the region's fingers. Despite the remarkable surge in oil prices, oil production in western Siberia has leveled off in recent years. Output barely rose from 2004 to 2007—a period when the rulers of the Kremlin, a cold-eyed and control-oriented crew, seized choice fields once held by private oil barons. The oligarchs, as they were known, were rapacious sorts who jousted among themselves for spoils. But they also heavily invested in the fields in order to maximize production and profits. The Kremlin, by contrast, aims to exploit oil not only as a source of national wealth, but also as a political tool for making Russia a great world power once again. Its heavy-handed tactics have made foreign investors wary and could undermine the boom—and with it Khanty-Mansi's chances for a brighter future.

When Siberia's oil lands came under development, native people were forcibly herded into villages and cut off from their hunting and fishing grounds. Following the breakup of the Soviet Union, the nomads won legal status as "aboriginal people," with the right to roam the oil fields. Rural Russia is also being depopulated by the flight of young people to Moscow and other cities.

To counter these trends, Filipenko has implemented ambitious plans to turn Khanty-Mansi into a place young people will choose to live in rather than leave. And this effort, he boasts, is working. He notes that Khanty-Mansi has the third highest birthrate among provinces in Russia, and unlike the country as a whole, whose population is in decline, Khanty-Mansi's has increased 18 percent since 1989, from a combination of births and immigration.

Oil composes 90 percent of the capital's economy, which is not surprising given the surge in oil prices. But it points to a problem shared by all resource-dependent economies: At some point the resource will be exhausted, and new sources of prosperity will have to be found.

Mike - the MBA blogger