HASAN SELİM ÖZERTEM POLITICAL ECONOMY OF ENERGY SECTOR RESTRUCTURING IN THE POST-SOVIET SPACE: RUSSIA AND AZERBAIJAN IN COMPARATIVE POLITICAL ECONOMY OF ENERGY SECTOR RESTRUCTURING IN THE POST RESTRUCTURING SECTOR OF ENERGY POLITICAL ECONOMY PERSPECTIVE A Ph.D. DissertAtion by HASAN SELİM ÖZERTEM DepArtment of - SOVIET SOVIET SPACE PoliticAl Science And Public AdministrAtion İhsan DoğrAmAcı Bilkent University AnkArA June 2019 Bilkent University 2019 To My Family POLITICAL ECONOMY OF ENERGY SECTOR RESTRUCTURING IN THE POST-SOVIET SPACE: RUSSIA AND AZERBAIJAN IN COMPARATIVE PERSPECTIVE The Graduate School of Economics and Social Sciences of İhsAn DoğramAcı Bilkent University by HASAN SELİM ÖZERTEM In PArtiAl Fulfillment of the Requirements for the Degree of DOCTOR OF PHILOSOPHY IN POLITICAL SCIENCE THE DEPARTMENT OF POLITICAL SCIENCE AND PUBLIC ADMINISTRATION İHSAN DOĞRAMACI BİLKENT UNIVERSITY ANKARA June 2019 ABSTRACT POLITICAL ECONOMY OF ENERGY SECTOR RESTRUCTURING IN THE POST-SOVIET SPACE: RUSSIA AND AZERBAIJAN IN COMPARATIVE PERSPECTIVE Özertem, HAsAn Selim Ph. D., Department of PoliticAl Science and Public Administration Supervisor: Asst. Prof. Dr. H. Tolga Bölükbaşı June 2019 This dissertAtion explores the politicAl economy of energy sector restructuring in the post-Soviet space with A particulAr focus on the role of elite structure therein. After remAining under the sAme Communist regime for seventy yeArs, ownership structures of energy sector in the post-Soviet countries diverged significAntly during the transition period. All countries in this space mAintAined their stAte monopolies in the sector. In RussiA, however, privately-owned national energy companies emerged to control the mAjority of the sector under Yeltsin’s rule. Using the comparative elite structure model, I Argue that during the transition period, elite structure, dimensions of which Are politicAl elite integration And elite cApacity, shaped the RussiAn And AzerbAijAni energy sector restructuring differently. Privately-owned national energy companies gained the mAjority of the energy sector’s ownership in Yeltsin’s RussiA with weAk politicAl elite integration with And high elite cApacity. I observed consolidation of the stAte’ ownership in the energy sector in Putin’s RussiA with strong politicAl elite integration And high elite cApacity. I observed continuation/consolidation of the stAte’s ownership in AzerbaijAn with strong politicAl elite integration And low elite cApacity. I show that these processes Are conditioned by the structural politicAl economic context eAch energy rich country finds itself in. Thus, I Also Argue that country’s stAtus As A center or periphery shapes the levels of politicAl elite integration And elite cApacity in transitional periods After An exogenous shock. Furthermore, the dissertAtion explores economic And politicAl repercussions of different ownership structures in RussiA and AzerbaijAn. Keywords: AzerbaijAn, Comparative PoliticAl Economy, Elite Structure, Energy Sector, RussiA i ÖZET ENERJİ SEKTÖRÜNÜN YENİDEN YAPILANDIRILMASININ EKONOMİ POLİTİĞİ: RUSYA VE AZERBAYCAN KARŞILAŞTIRMASI Özertem, HAsAn Selim Doktora, Siyaset Bilimi ve KAmu Yönetimi Bölümü Tez DAnışmAnı: Dr. Öğr. Üyesi H. Tolga Bölükbaşı HAziran 2019 Bu tezin AmAcı, seçkin yapısına bakarak Sovyet sonrası coğrafyada enerji sektörünün yeniden yapılAndırılmAsının ekonomi politiğini incelemektir. Sovyetler Birliği’nin dağılmAsının ArdındAn, 70 sene boyuncA Aynı sistemin bir parçAsı olAn ülkelerde, enerji sektörünün mülkiyet yapısında önemli AyrışmAlAr gözlemlenmektedir. Genel olArak enerji sektöründe devlet tekeli korunurken, Yeltsin dönemi Rusyası’nda özel-yerli şirketler ortAya çıkmış ve sektörün önemli ölçüde mülkiyetini ele geçirmeyi başArmıştır. Bu çAlışmAda karşılaştırmalı seçkin yapısı modeli kullAnılArak, seçkin yapısının temel unsurlArı olAn, siyasi seçkinler Arasındaki entegrasyon ve seçkin kapasitesinin ülkeler Arasında gösterdiği farklılıklArın geçiş süreçlerinde enerji sektörünün yeniden yapılAndırılmAsında AyrışmAlAra neden olduğu sAvunulmAktAdır. Siyasi seçkinler Arasındaki entegrasyonun zAyıf olduğu, AncAk yüksek seçkin kapasitesine sAhip olAn Yeltsin Rusyası’nda özel-yerli şirketler ortAya çıkarken bunun tAm tersi dinamiklere sAhip olAn AzerbaycAn’da devlet enerji sektörü üzerindeki tekelini korumAyı başArmıştır. Siyasi seçkinler Arasındaki entegrasyonun güçlendiği Putin döneminde devlet sektör üzerindeki hakimiyetini yeniden tesis etmeyi başArırken AncAk birkaç özel-yerli şirket önemli tAvizler vererek sektörde tutunmAyı başArmıştır. YAşAnan dış şoklArın Ardından geçiş sürecinde ülkelerin merkez veya çevre ülke olmAsı durumunun siyasi elit entegrasyonu ve elit kapasitesi üzerinde oldukçA etkili olduğu görülmektedir. Bu Açıdan ülkelerdeki ekonomi politiğin yapısAl dinamiklerinin seçkin yapısındaki farklılAşmAda önemli bir paya sAhip olduğu sAvunulmAktAdır. Bu çAlışmAda AyrıcA farklılAşAn mülkiyet modellerinin gerek ekonomik gerekse siyasi yansımAlArı Rusya ve AzerbaycAn Açısından incelenmektedir. AnahtAr Kelimeler: AzerbaycAn, KArşılAştırmAlı Ekonomi Politik, Enerji Sektörü, Rusya, Seçkin YApısı ii ACKNOWLEDGMENTS This dissertAtion is a product of ten yeArs of study at Bilkent University. It took longer than expected to finish this journey, becAuse I had to tAke a breAk of almost two yeArs due to unexpected developments in my life. When I got the chance to restArt, it wAs not eAsy to refocus and wrap up the dissertAtion After such a long breAk. ThAnks to my advisor’s sincere support and encouragement, I mAnaged to overcome eAch and every barrier before the finishing line. That is why I would like to express my sincere gratitude to my advisor Dr. H. Tolga Bölükbaşı for his continuous help, guidance, patience, and immense knowledge. Without him it would be almost impossible to close this chapter of my life. Besides my advisor, I would like to thank the rest of my thesis committee: Prof. MitAt Dr. ÇelikpalA, Assoc. Prof. Dr. SAime Özçürümez, Dr. Onur İşçi and Dr. NAzlı Şenses ÖzcAn, for their insightful comments and contributions, which motivated me to widen my reseArch from various perspectives. My sincere thanks also go to Prof. Dr. OktAy F. Tanrısever who contributed to my AcAdemic studies from the beginning of my journey. I would also like to express my sincere gratitude to Prof. Dr. Eyüp Özveren And Dr. Berrak BurçAk for their valuable mentorship. I wAs lucky to be a visiting reseArcher at Carnegie Moscow Center for about three months and leArned a lot from Dr. NAtAliA Bubnova And Mr. Dmitri Trenin. I would like to thank them for giving me the opportunity to be a part of the Carnegie Moscow during my stAy in RussiA. I would also like to thank my friend Mr. ZAur Shiriyev for his greAt hospitAlity. He wAs so kind to open his house for me during my field reseArch in Baku And helped me to feel like home. LAst but not the leAst, I would like to thank my family: my wife, my parents, and my son. They were all incredibly supportive and patient. My son, Hüseyin, joined to the club A little bit lAter, but becAme more curious than others to know about the destiny of the dissertAtion As he grew up in this process. My wife, Nihal, had to postpone so mAny things in her life, but never complAined. I would like to thank her for her infinite tolerance and sAcrifice. iii TABLE OF CONTENTS ABSTRACT .................................................................................................................. i ÖZET ............................................................................................................................ ii ACKNOWLEDGMENTS ........................................................................................... iii TABLE OF CONTENTS ............................................................................................ iv LIST OF TABLES ..................................................................................................... vii LIST OF FIGURES .................................................................................................... vii ABBREVATIONS .................................................................................................... viii CHAPTER 1 INTRODUCTION ............................................................................... 1 1. INTRODUCTION ............................................................................................ 1 2. SignificAnce of the ReseArch ............................................................................ 1 3. ReseArch Questions, ReseArch Design, ReseArch Method ............................... 4 3.1. ReseArch Questions .................................................................................. 4 3.2. ReseArch Design and DelimitAtions ......................................................... 5 3.3. ReseArch Methods .................................................................................... 8 4. Structure of the DissertAtion ........................................................................... 12 CHAPTER 2 REVIEW OF THEORETICAL ARGUMENTS – OPENING THE BLACK BOX OF THE STATE WITH THE COMPARATIVE ELITE STRUCTURE MODEL ............................................................................................. 15 1. INTRODUCTION .......................................................................................... 15 2. Review of the Literature on the PoliticAl Economy of HydrocArbon Resources 17 2.1. The Debate on the Rentier StAte ............................................................. 17 2.2. The