Is this a good thing? It is profoundly disturbing that many people who wish Russia well are characterized as anti-Russian for raising inconvenient questions. In the energy sector, these questions are important not only to Russia. Tight supplies make waste, inefficiency and corruption in any supplier nation a factor in global energy security. Russian leaders who note that state control of energy resources is the norm in most countries rarely explore why this is the case. Is it because state oil and gas companies are more efficient than private enterprise? Or is it because governing elites have found that natural resources provide unparalleled opportunities for both populist policies and predatory behavior in the name of protecting the national interest?

Some countries have managed to turn their natural resource sectors into healthy components of knowledge economies. Yet the pathologies of the "resource curse" remain perniciously difficult to avoid. Lilia Shevtsova recently suggested that all of the elements of the resource curse are now present in Russia. Steve Fish dismisses rentier, repression and modernization effects in the Russian case, but finds that high levels of corruption do correlate with the oil and mineral wealth. This tracks with the findings of Montinola and Jackman that OPEC membership and corruption are closely linked. Perhaps more important, they also point out that industrial policy is associated with heightened levels of corruption, and that attempts to foster national champions almost invariably invite abuses. Some of the most pertinent parallels for the Russian case are in Terry Lynn Karl's work on Venezuela, where manifestations of the Dutch disease included the decline of productive industries and agriculture; rapid growth in services, transportation and other non-tradable's, a boom in speculative activity; and significant in-migration from poorer neighbors.

The evolution of Gazprom and Rosneft as "national champions" would elicit more enthusiasm if their selection were based on their competitive abilities or represented a reward for their having carried out significant restructuring. Winning non-transparent insider battles over the redistribution of valuable oil assets is hardly an indication of their capacity to operate efficiently. Guaranteeing preeminence in a stable environment is rarely an incentive for any corporation to undertake the difficult work of restructuring. Gazprom was already a bloated and unaccountable behemoth. Adding lucrative oil production facilities, restoring state control (51% of the shares), and going to global markets to raise billions in new capital are not likely to encourage greater efficiency. Some foreign investors will undoubtedly celebrate the dismantling of the "ring fence" that has limited outside investors to expensive ADRs. But if no shareholders are in a position to demand change and Russia's national champions remain insulated from competitive pressures, reform is not likely. While protecting particular interests in the short run, this is likely to undermine Russia's longer-term economic security.

It is not clear whether Mr. Putin personally prefers one national champion, two, or several. In his article he refers to inter-branch complexes and financial-industrial groups in the plural. He might well regard the infighting that has produced two "champions" (thus far) as inevitable and perhaps as positive in that it fosters a form of competition and leaves some levers in the hands of the President. Establishing one or more large, vertically integrated Russian energy enterprises appears to have been a prerequisite for regularizing relations with foreign partners and investors.

Will doing business in the energy industry in Russia now be "normal?" In his meeting with oil industry executives during his visit to Washington in September 2005 Mr. Putin certainly sought to convey this impression, suggesting that there are no fixed limits restricting foreign ownership in the Russian energy sector. A delegation led by Fuel and Energy Minister Viktor Khristenko in late October reiterated Russian interest in cooperative projects, and a long-awaited list of Russian "strategic resources" made public in October proved less restrictive than many had feared. With the creation of national champions, the Russian leadership may now be willing to expand the regions open to foreign participation beyond the technologically difficult continental shelf and to accept greater foreign ownership in energy firms.

Even if some restrictions are removed, the battles within Russia pitting energy industry executives and their bureaucratic supporters against each other and against foreign players will continue to be fierce. While intense competition and government involvement are hardly unusual in the energy industry, in Russia the final arbiter is an individual rather than the market or another institutional mechanism. Mr. Putin's article makes it clear that his concept of Russian state interests will remain paramount. American Congressional reaction to the bid by the Chinese National Offshore Oil Company (CNOOCO) to acquire UNOCAL demonstrates the intense political concern that foreign control of energy assets can provoke. Mr. Putin's government is more united in its resistance to foreign involvement that might hinder state control in Russia's energy sector. The blend of market and administrative measures employed in regulating Russia's energy industry remains subject to adjustment.

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