Oil and the Soviet Union in the 1980's Essay example

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The end of the Soviet Union gave rise to a sharp increase in potential foreign investment. &nbsp;As the economy quickly opened its doors, the goods that had previously been aggressively controlled and limited were now at a point where they could expand rapidly. &nbsp;Oil, in particular, had the potential to be a major source of foreign investment in Russia. &nbsp;However, it was considered very risky. &nbsp;Still, many Western firms were at the least, very interested in gaining access to such a large pot of oil.<p> Entry into this enormous market was considered very valuable as well as very risky. &nbsp;The importance of an early position into the Russian oil market can not be understated. &nbsp;In 1983, Russia supplied 12 million barrels…show more content…
&nbsp;First, the laws and political hurdles in Russia (and most countries) take significant time to sort out and bypass. &nbsp;In Russia, it is necessary to have political connections in order to even gain access to the oil markets. &nbsp;These relationships take significant time to build. &nbsp;Also, once a firm established political support, it needed to find a site with enough oil to make it worthwhile to build operations. &nbsp; The testing process to find a well is also a lengthy process. &nbsp;Next, the drilling and pipelines are built and the oil is retrieved, treated, and transported to the market or storage. &nbsp;This process is also very time consuming. &nbsp;As a result of these factors, firms interested in gaining access to these regions often wait many years before they become established producers of oil products. &nbsp;It takes even more years to be profitable. &nbsp;Therefore, by gaining early entry into the Russian oil market, a foreign firm can gain many strong years of prosperity and growth. &nbsp;<p> On the other hand, due to the risky economic, political, and financial position of the country, the prize may never be realized. &nbsp;An investment in Russian oil is very expensive. &nbsp;Many costs have to be paid upfront before any revenues have even been generated. &nbsp;For example, drilling, pipelines, corporate overhead, and facilities are a few examples of costs which the firm needs to pay before generating any revenue.

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