Ethnicity, Economics and Energy – Russia’s relations with Central and Eastern Europe

17 May 2012

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Gas pipeline ‘pig trap’

Russia’s energy supplies ensure that Moscow maintains a geopolitical foothold in the European part of the former Soviet space.

By Sonia Rothwell


Yesterday we began charting how Russia seeks to maintain economic and geopolitical leverage across the former Soviet space. Our analysis inevitably reflects that it is now over two decades since the former USSR splintered into its constituent parts. Yet the return of Vladimir Putin to the Russian Presidency nevertheless provides us with insights into how Moscow might attempt to increase leverage in its former sphere of influence over the next 5-10 years. It is currently estimated, for example, that almost 70% of Russia’s export receipts are made up of transfers of natural resources, with the former Soviet space being a major recipient of end-products. A very healthy trade-surplus of more than $500bn provides Putin with opportunities to use Russia’s finances to its flex geopolitical muscle. During his election campaign, Putin pledged to invest approximately $750 million in Russia’s defense sector.

But to what extent do the former Soviet republics look to their old imperial master for security and economic cooperation? To answer this question, today we focus upon three sub-regions of the former Soviet Union – the Baltic States, Ukraine and Moldova. While each of these regions are forging economic and political relations that look beyond Russia, Moscow has the potential to use its energy supplies – and to a lesser extent its ethnic ties – to maintain a strategic foothold in Central and Eastern Europe.

A Changed Eastern Europe

From an economic and geopolitical perspective, the Baltic States have done the most out of all the former republics to distance themselves from their Soviet past. Each state is now a fully-fledged member of the European Union (EU) with Estonia (whose trade and cultural links have traditionally favored Finland) taking a step further away from Moscow after it joined the Eurozone in 2011. Like the Baltic States, Moldova also aspires to closer economic ties with the West in general and Europe in particular. Recently, Moldova’s Prime Minister and President re-affirmed their commitment to membership of the EU. Moldova’s efforts to also join NATO are largely encouraged by Romania and underpinned by linguistic and cultural affiliations between the two countries.

Russia nevertheless maintains a significant strategic foothold within Moldova. Its 14th army is stationed in the self-proclaimed majority Russian state of Trans Dniestra with Moscow also providing financial assistance to the government in Tiraspol. Strategically, it is in Russia’s interests to safeguard Trans-Dniestra’s independence to maintain Moscow’s influence within the region and divert Moldova’s attention away from full EU membership. Nevertheless, Russia maintains strong bilateral trade links with Moldova and there are calls for the country to join Russia’s nascent Customs Union. So in sharp contrast to the Baltic States, Moldova is seemingly pulled in two directions by its near- neighbor Romania and an economically significant Russia.

Arguably the most interesting zone of competition between Russia and the EU is Ukraine. The second largest European country after Russia, Ukraine’s massive metals industry makes it vulnerable to the geopolitical caprices of its mighty neighbor. Yet Ukraine is of importance to Russia in terms of energy revenues and the four million migrant workers who contribute to Russia’s economy. As outlined yesterday, Ukraine’s current President, Viktor Yanukovich, has also developed a more pragmatic approach to relations with Moscow that stand in sharp contrast to his predecessor, Viktor Yuschenko. Yet despite increasingly warmer ties between Kiev and Moscow, Ukraine continues to develop political and economic relations with the EU. Kiev is on the verge of signing a major trade agreement with the EU, despite concerns over the apparent shrinking of the post-Orange Revolution democratic space. In particular, the current government’s pursuit of the former Prime Minister Yulia Tymoshenko risks derailing relations between Ukraine and the EU.

Energy Sets Free?

While Russia remains the largest supplier of energy to the EU, analysts are increasingly concerned that Moscow’s dependence on its fossil fuels for foreign cash is a long-term gamble that could backfire. It is also feared that Russia’s budget now faces a major deficit after years of surplus (though there are hopes that this may lead to long-awaited reform of Russia’s economy and encourage foreign investment). Increasing interest in unconventional gas supplies – such as ecologically controversial shale gas – may also jeopardize Russia’s wealth potential as more countries explore domestic reserves in order to safeguard their energy security. This includes Ukraine, for whom exploiting shale gas reserves would help decouple its energy dependence from Russia, something which Moscow has used against Kiev on at least two occasions in the past six years.

Yet not only does the extraction of shale gas remain mired in controversy, the Baltic States’ accession to the EU has nevertheless allowed Russia to maintain a degree of leverage within this region through energy supplies. Since its Soviet-era nuclear plant at Ignalina was decommissioned as part of its accession to the European Union, Lithuania – the least ethnically Russian Baltic state – has been forced to depend on Russia for its electricity as well as gas and oil supplies. As an importer of Lithuanian electricity, the closure of Latvia’s nuclear reactors also increased Riga’s dependence on Russian supplies, a potentially chastening experience for states that were quick to declare their independence from Moscow.

Nevertheless the Baltic States are looking to restore local electricity provision through the construction of a new nuclear facility near to the old Ignalina plant. Estonia and Latvia are also in talks to become shareholders in this project thereby strengthening regional co-operation. There are concerns that this project would place too heavy a financial burden on Lithuania’s largely service sector economy. Yet this project is as much a statement of political intent as economic expediency. Lithuania selected a Japanese-American conglomerate, Hitachi-General Electric, as the project’s strategic investor. The fact that the second bidder in competition was also Japanese-American further suggests that Lithuania continues to look beyond the post-Soviet space for capital and for its future.

Energy = Leverage

However, a significant complicating factor is Russia’s continued ability to use energy as a major instrument of its foreign policy. The ethnic Russian exclave of Kaliningrad is planned to be the location of one of two nuclear plants being built by Moscow. Russia plans to construct a second plant in Belarus although there are concerns that this plant is nothing more than a ploy to discourage investment in the Lithuanian Visaginis project. The Kaliningrad plant is intended to supply electricity to Poland, Germany and the Baltic States. Crucially, Moscow has said that the first of the reactors (if it is constructed) would be operational at least two years ahead of its Lithuanian counterpart. The time difference may prove critical for gaining commercial and political advantage in local and international markets and potentially makes the Lithuanian plant redundant before it is even operational. And despite concerns that Moscow’s timeframe appears ambitious, the project may be construed as a serious geopolitical attempt to scupper the Baltics’ bid for energy autonomy.

Interestingly, there is also the possibility that Moscow’s hand could be behind delays to the decommissioning of Lithuania’s old Ignalina plant. According to a report in the Jamestown Foundation’s Eurasia Daily Monitor , the company carrying out the decommissioning contract, Nukem, was initially German when it won the decommissioning contract but has since become a Russian-owned firm. It may be happenstance but if Moscow is behind such moves it may also be an indicator of what is at stake for Russia in this region.

Accordingly, energy supply is central to Russia’s attempts to maintain political leverage in the former Soviet space. And it is an instrument that Moscow is not afraid to use. Russia has previously demonstrated to Moldova and Ukraine that it can be minded to turn off its energy supplies to ensure that Moscow’s presence is still felt across the region. But despite Russia’s best efforts, it appears that many Central and Eastern European states have set themselves a multi-vector future course that is not strictly focused on their former Soviet master. Nevertheless, Russia still has enough energy reserves to continue challenging these arrangements.


Sonia Rothwell is a multimedia journalist who has previously worked for the BBC and ITN. She holds an MSc in International Security and Global Governance from the University of London.

Editor’s note:

For more content on Russia, please see our dossier on the topic.

For more information on issues and events that shape our world please visit the ISN’s Security Watch and Blog.

Read more:

http://www.isn.ethz.ch/isn/Digital-Library/Special-Feature/Detail?lng=en&id=142535&contextid774=142535&contextid775=142534&tabid=142534

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