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Putin's Far East Gambit: The $65 Billion Dream
How Russia's only officially government-backed Bering Strait proposal became entangled in Far East development politics, oligarch interests, and the brutal realities of the 2008 financial crisis
Abstract
In April 2007, Russia did something unprecedented in the century-long history of Bering Strait proposals: it officially backed one. Viktor Razbegin, deputy head of industrial research at the Russian Economy Ministry, stood before reporters in Moscow to announce that the Russian government would support a $65 billion plan to build the TKM-World Link—a 6,000-kilometer transport corridor culminating in a 103-kilometer tunnel under the Bering Strait. The project would be a public-private partnership involving Russian Railways, Unified Energy System, and Transneft, with Russia and the U.S. each potentially taking 25% stakes. This was no longer dreaming—this was policy. Yet within 18 months, the global financial crisis would shatter Russia's economy, oil prices would collapse from $147 to $30 per barrel, and the project would quietly fade into the same limbo that had claimed every Bering proposal before it. This paper examines what made 2007 different, why Putin actually backed the proposal (hint: it wasn't about the tunnel), how the project became enmeshed in Far East development politics and oligarch interests, and why even official government support couldn't overcome the fundamental economics of an idea whose time has never quite come.
1. April 2007: The Press Conference That Made History
The announcement came on April 18, 2007, in Moscow. Viktor Razbegin, speaking on behalf of the Russian Economy Ministry, revealed details of what he called the TKM-World Link—short for TransKontinental'naya Magistral', or Transcontinental Railway. This wasn't a private entrepreneur's pitch or an academic's thought experiment. This was Russia's government, speaking officially, committing to back a consortium that would build infrastructure on a scale that would dwarf the Trans-Siberian Railway.
The TKM-World Link: Project Specifications
Total corridor length: 6,000 kilometers (3,700 miles)
Tunnel length: 103 kilometers (64 miles)—more than twice the Channel Tunnel's undersea section
Total cost estimate: $65 billion ($10-12 billion for tunnel alone)
Construction timeline: 10-15 years
Proposed route: From Pravaya Lena (south of Yakutsk) to Uelen on the Bering Strait (Russia), crossing to Alaska, then 2,000 km to Fort Nelson, Canada
Purpose: Transport oil, natural gas, electricity, and rail passengers between Siberia and North America
Expected freight capacity: 100 million tons annually
Projected revenue: $7 billion per year
Financing structure: Public-private partnership with Russia and U.S. each taking potential 25% stakes
What made this announcement extraordinary wasn't just the government backing—it was the consortium behind it. The press release bore the logos of OAO Russian Railways, national utility OAO Unified Energy System, and pipeline operator OAO Transneft. These weren't speculative investors—these were state-controlled giants that dominated Russia's infrastructure landscape.
Razbegin emphasized that Russia was "coordinating with the U.S. and Canada" on the project. Japan, China, and Korea had already expressed interest, he claimed. Japanese companies had even offered to burrow the tunnel for $60 million per kilometer—half the project's estimated cost. The message was clear: Russia was serious, partners were interested, and the technology existed to make it happen.
The Context of Confidence
To understand why Russia made this move in 2007, one must understand the economic moment. Oil prices were soaring—they would reach $147 per barrel by July 2008. Russia's economy had grown at an average of 7% annually since Putin took power in 2000. The country had accumulated massive currency reserves ($582 billion by August 2008) and was running consistent budget surpluses.
This was the era of Russia as "energy superpower"—a phrase that emerged in 2006 and captured the Kremlin's confidence. Putin had consolidated control over strategic sectors, reversed the chaos of the Yeltsin years, and was presiding over what appeared to be a durable economic boom. In this environment, a $65 billion infrastructure mega-project seemed not just feasible but fitting for a nation reasserting its great power status.
— Maxim Zubakin, CEO of New Transportation Systems, 2007
2. The Real Agenda: Far East Development
The Bering Strait tunnel was never primarily about connecting to Alaska. It was about solving Russia's most intractable geographic and demographic problem: the Russian Far East.
The Far East Crisis
Russia's Far East comprises roughly one-third of the country's territory but holds less than 5% of its population. Since the Soviet Union's collapse, the region had been hemorrhaging people. The population dropped 14% in the fifteen years following 1991—a steeper decline than Russia as a whole experienced. Government forecasts predicted the population could drop to 4.5 million by 2015 from over 8 million in the early 1990s.
The region's depopulation wasn't just a demographic curiosity—it was a strategic nightmare. The Far East borders China, whose population in adjacent provinces dwarfs Russia's Far East population by ratios exceeding 20-to-1. The region holds vast resource wealth: most of Russia's metal and mineral reserves, timber, fisheries, and potential oil and gas. Yet according to Artur Alexeyev, vice president of the Sakha republic, only 1.5% of these resources were being developed due to "lack of infrastructure and tough conditions."
The Infrastructure Gap
The Russian side of the Bering Strait had virtually no infrastructure. The nearest railway terminus was 2,800 kilometers away. The M56 Kolyma Highway—the closest major road—was unpaved and approximately 2,000 kilometers from the strait. Towns in Chukotka, the region nearest the strait, had lost more than half their populations. Provideniya, once home to 5,000 people, had seen massive outmigration leaving "boarded-up apartment buildings, stray dogs and dwindling jobs."
Putin's Far East Strategy
The Bering tunnel proposal must be understood within Putin's broader Far East development strategy. In 2008, Prime Minister Putin approved a development plan to run until 2030 that included building a railway deeper into the Far East. The Amur-Yakutsk Mainline, connecting Yakutsk's railway with the Trans-Siberian, was already under construction and would be completed in 2013.
The TKM-World Link wasn't standalone infrastructure—it was the capstone of a comprehensive strategy to tie the Far East more tightly to European Russia while simultaneously creating the economic conditions that might reverse population decline. If you build 3,500 kilometers of railway to support a Bering tunnel, you incidentally solve much of the Far East's infrastructure problem. The tunnel itself was almost secondary to the transformation of Siberian connectivity it would require.
As Alexeyev noted, a rail link to North America "could carry commodities from east Siberia and Sakha to North American export markets," opening development possibilities for a region where massive resource wealth sat untapped due to infrastructure gaps.
3. The Oligarch Factor: Who Stands to Profit?
The consortium structure revealed something crucial about Russian mega-projects: they're as much about distributing economic opportunities among elites as they are about the stated infrastructure goals.
The Big Three
The three state companies backing the project represented enormous concentrated economic power:
- Russian Railways (RZD): Controlled by the state, with revenues exceeding $40 billion annually
- Unified Energy System (UES): Russia's electricity monopoly before its 2008 breakup
- Transneft: State pipeline monopoly controlling oil transport across Russia
These weren't independent commercial entities making investment decisions based solely on return projections. They were instruments of state policy, directed by Kremlin insiders and expected to advance strategic as well as economic objectives.
The Protection Racket
Analysts have described Putin's economic system as a "protection racket"—not purely exploitative, but a "mutual defense pact that benefits all participating parties." The state protects oligarchs and major companies from creditors, competitors, and foreign pressure. In return, these entities undertake projects advancing state interests, even when commercial logic is questionable.
The TKM-World Link fit this pattern perfectly. A $65 billion project would funnel enormous resources through these state-controlled entities. Construction contracts, equipment purchases, consulting fees—all would flow through networks controlled by Putin-aligned interests. Whether the tunnel ever generated positive returns became almost secondary to the economic activity and rent distribution it would create during construction.
The Regional Dimension
Local officials in the Far East were enthusiastic backers. For regional leaders in Yakutia (Sakha Republic) and Chukotka, the project represented potentially transformative federal investment in regions that felt perpetually neglected by Moscow. The project would employ thousands, require massive procurement of local services, and elevate regional political importance.
But there was darker history. During the Soviet era, much Far East development had relied on gulag labor. While the TKM-World Link involved no such horrors, the region's economic history was one of extractive industries serving distant power centers—first Moscow, then potentially international markets—while locals bore environmental costs and saw limited benefit.
4. The American Question: Where Was Washington?
Razbegin claimed Russia was "coordinating with the U.S. and Canada," but American sources tell a different story. There's no evidence the U.S. government ever seriously engaged with the proposal.
Alaska's Ambivalence
Former Alaska Governor Wally Hickel had long championed a Bering connection, telling media in 2007: "This is going to change the world, and it is easy to do. All it takes is a decision." But Hickel represented a minority view even within Alaska. State officials recognized that becoming a "transport hub" for Siberian resources offered limited benefit to Alaskans while requiring massive infrastructure investments Alaska couldn't afford.
The Alaska Railroad extended only as far as Fairbanks. Connecting to the Bering Strait would require approximately 1,200 kilometers of new track through some of the most challenging terrain in North America—seismically active, permafrost-ridden wilderness where construction costs routinely exceeded $3 million per kilometer. A proposed road connection from the Alaska road network to Nome alone carried estimated costs of $2.3-2.7 billion, and it had never been funded despite decades of discussion.
Washington's Skepticism
U.S. federal officials were notably absent from the 2007 announcement. No State Department representative attended. No Transportation Department official commented. The silence was deafening and revealing.
From Washington's perspective, the proposal raised several red flags:
- Economic logic: Trade volumes between the U.S. and Russia didn't justify the investment
- Security concerns: A physical connection to Russia created strategic vulnerabilities
- Financing skepticism: Russia expected 25% U.S. government stake in a project of doubtful commercial viability
- Alternative priorities: U.S. infrastructure needs were vast; Alaska connectivity ranked low
As one skeptical economist noted: "For all we know, the U.S. doesn't want to make Alaska a transport hub."
5. 2008: The Year Everything Changed
Just 16 months after Razbegin's confident Moscow press conference, the world—and Russia—looked completely different.
The Triple Shock
Russia's economy was hit by what analysts called a "triple shock":
Russia's brief war with Georgia over South Ossetia spooked foreign investors. Billions in foreign capital fled Russia as geopolitical risk suddenly seemed acute. The RTS stock index had already begun declining.
The global financial crisis erupted. By mid-October, Russia's RTS stock market had plummeted 70% from its May peak. Foreign investors discarded ruble-denominated assets en masse. Russia's Central Bank owned $100 billion in now-toxic U.S. mortgage-backed securities.
The oil price crashed from $147 per barrel in July to $30 by December—an 80% collapse. Russia's budget, premised on high energy prices, faced an immediate deficit projected at 8% of GDP for 2009.
The combined effect was catastrophic. Russia's real GDP dropped 7.9% in 2009. Industrial production collapsed. Unemployment surged. The ruble depreciated sharply despite the Central Bank spending $200 billion in reserves trying to support it. Foreign credit dried up as Russian companies and banks couldn't roll over the external debt they'd accumulated during boom years.
The Bailout Imperative
Putin faced a choice: let major companies fail or bail them out. He chose bailouts, committing close to 7% of GDP to support the financial sector and real economy. This was the "protection racket" in action—the state protecting oligarchs from creditors in exchange for their continued loyalty.
But bailouts came at enormous fiscal cost. By late 2008, Russia's decade-long run of budget surpluses had ended. The government faced its first deficit since the 1998 crisis. Suddenly, finding $65 billion for a Bering tunnel—or even a fraction of that amount—became impossible.
Priority Inversion
In early 2007, with oil at $60 per barrel and rising, spending $65 billion on mega-infrastructure seemed reasonable. By early 2009, with oil at $30-40 per barrel and budget deficits looming, every ruble mattered. Social services, pensions, unemployment benefits—these demanded immediate spending. A tunnel to Alaska that might generate returns in 20-30 years couldn't compete.
The government announced plans to sell state holdings in energy and transport companies to plug budget deficits. The notion of taking 25% equity stakes in speculative mega-projects had become absurd.
The Recovery's Character
When Russia recovered—oil prices rebounded, GDP returned to growth in 2010—the nature of the economy had shifted. The crisis revealed Russia's fundamental vulnerability: overwhelming dependence on commodity prices. Reformers called for diversification, modernization, improved business climate. What they got instead was consolidation of state control and a turn toward nationalism.
In this environment, the TKM-World Link proposal simply faded. No official cancellation was announced. No press conference declared failure. The project just... stopped being discussed.
6. The 2011 Revival: One More Try
In August 2011, hope flickered briefly. At a conference in Yakutsk, President Dmitry Medvedev's top officials—including Aleksandr Levinthal, deputy federal representative for the Russian Far East—again backed the proposal. Reports claimed the Russian government had "approved" the $65 billion project.
Supporters argued it would be "faster, safer, and cheaper" than container ships for moving freight. They estimated it could carry 3% of global freight and generate $7 billion annually. The pitch emphasized the Amur-Yakutsk Mainline's 2013 completion, which would extend rail much closer to the Bering Strait, reducing the infrastructure gap.
But skepticism had hardened. Observers noted that rail transport from China to Europe already cost more than maritime shipping (except for expensive cargo where lead time mattered). Why would a longer, more complex route via Alaska fare better? The economic logic remained elusive.
More fundamentally, the 2011 "approval" came with no funding commitment, no construction timeline, no consortium reconstituted. It was rhetorical support—the kind officials give to projects they want to appear enthusiastic about without committing resources.
By 2012, Putin had returned to the presidency after his four-year "prime minister" interlude. His focus had shifted from infrastructure mega-projects to dealing with growing domestic discontent, navigating the "Arab Spring" implications, and managing Russia's difficult relationship with a West increasingly critical of his authoritarian drift.
The TKM-World Link was never officially cancelled. It simply joined the long list of Bering proposals that fade from active consideration without ceremony.
7. What Actually Got Built: The Amur-Yakutsk Mainline
While the Bering tunnel remained fantasy, one piece of the broader strategy actually materialized: the Amur-Yakutsk Mainline (AYaM), completed in 2013.
The 2,800-kilometer railway connected Yakutsk with the Trans-Siberian Railway, ending the capital of Sakha Republic's isolation. This was real infrastructure addressing real needs—connecting existing population centers, enabling resource extraction, providing an alternative to expensive air transport.
AYaM cost approximately $4 billion—less than one-fifteenth the TKM-World Link's estimated cost. It required no international coordination, no undersea tunneling, no navigation of complex geopolitics. It was hard enough: construction through permafrost, seismic zones, and extreme climate challenged engineers. But it was achievable.
The contrast is instructive. When Russia focused on domestic connectivity rather than transcontinental ambition, infrastructure got built. The Bering tunnel failed not because Russia lacked engineering capability, but because it required economic conditions, international cooperation, and trade volumes that never materialized.
8. Conclusion: The Limits of State Will
The 2007-2011 TKM-World Link episode is unique in Bering Strait history: the only proposal to receive official government backing from a major power. Russia's Economy Ministry endorsed it. State-controlled industrial giants signed on. Regional leaders championed it. Putin's government explicitly approved Far East railway construction as part of development plans through 2030.
Yet despite this unprecedented support, the project failed. This failure reveals fundamental truths about infrastructure mega-projects:
- Political will isn't enough: Even authoritarian states with vast resources can't override economic logic indefinitely
- Timing is everything: The 16-month window between proposal and crisis was too narrow for meaningful progress
- Hidden agendas matter: The tunnel was really about Far East development; when that could be addressed more cheaply, the tunnel lost purpose
- International projects require trust: U.S.-Russia relations were already strained in 2007; by 2014 they were hostile
- Economics eventually dominate: No amount of geopolitical symbolism can justify $65 billion without plausible returns
The TKM-World Link taught Russia a lesson it should have learned from its predecessors: the Bering Strait tunnel's real obstacle isn't engineering—it's that the economic and political conditions required for success have never existed simultaneously and may never exist.
Russia got something valuable from the episode: the Amur-Yakutsk Mainline, which actually improved Far East connectivity. The tunnel itself returned to where Bering proposals always end up: on drawing boards, in archives, waiting for the next era of optimism to briefly revive the dream before reality intrudes once more.
In our next paper, we'll examine the Post-Soviet revival era of the 1990s and early 2000s—when a newly opened Russia first began seriously discussing Western partnerships and how the end of the Cold War briefly made a Bering connection seem like more than a fantasy.
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