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Kivinen Markku*
(Финляндия)
Russian energy policy and the CIS
1. The arguments
After a couple of rather confusing years Russian foreign policy started to find some of its basic tenets. Ever since 1993 Russia has had a clear interest to maintain her position as a great power. This approach crystallised after Yevgeni Primakov started as a prime minister in 1996, and it is known as Primakov’s doctrine. Russia does not accept a world where the U.S. would be dominating as the only superpower. For Primakov the key issue if Russia were to maintain its position as a great power would be a strong hold on the CIS. Almost all Russian politicians have entertained this kind of view ever since. This can be heard in Vladimir Putin’s speeches as well as in Anatoli Tshubais hankering for a “liberal empire”.
In this paper I am making the following arguments:
- Russian foreign policy has a special approach to the region of FSU.
2. This does not necessarily mean a special role for the CIS as an organisation. More important are the various sub-regional organisations and bilateral bargaining games with the CIS countries.
3.The frames for combining politics and economy in these bargaining games differ on case by case basis.
4.Several actors are involved in these games and their interests do not coincide in an inevitable way.
2. The worst case scenario
Our research group (Aalto et al. 2007, Kivinen 2007, Dusseault 2007, Kennedy 2007) has in several recent papers made an effort to show that we would need concrete analysis of structuration of energy policy starting from structural constrains, cultural frames and different actors. This is especially important since our understanding is that in the post-Cold War situation the interests are not given. Rather they are in the articulation process in Russia, in the CIS countries as well as in the European Union.
As a policy conclusion one of the most significant tasks in contemporary situation is to avoid energy security dilemma as Andrew Monaghan (2007) has presented it. Diversifying from each other decreases stability. The worst case scenario in this respect could be a return to new version of cold war.
China has both strategic and economic interests in Russia as well as in Central Asia. Beijing has its 1800 miles border with Kazakhstan, Kyrgyzstan and Tajikistan. Kyrgyzstan is the most strategically sensitive of them because it directly borders Xingjian province, which is beset by Uighur separatist unrest. China and Russia seem to share strategic concerns over neutralizing U.S. influence in Central Asia, especially in Kyrgyzstan. Economically, Central Asia’s energy resources are tempting for meeting China’s rapidly growing import needs. Kazakhstan has actively promoted its relationship with China and though it thus far receives only a small amount of oil from Kazakhstan, this supply will soon increase exponentially.
In the new cold war scenario Russia would diversify its energy towards China and use energy as a lever to construct a new alliance against NATO. This new coalition would be based on Shanghai cooperation and new military alliance in the CIS district. Evidence of this move can be seen in the increase in economic relations and trade in addition to the export of weapons (two-thirds of all Russian export weapons are bound for China and India). The volume of trade between Russia and Asia has risen rapidly. And according to the energy policy program of Russian government Russia’s energy export to Asia will rise ten fold, that is from the current 3 per cent to 30 per cent in the next decade (Kimura 2007). If the whole Russian economy would diversify towards military industry this would in worst case create a completely new kind of confrontation in Europe as well as on the global scale.
3. The situation in the CIS
What is the actual economic situation within the CIS? One clear tendency has been and must be that the economic relations between the countries are more and more based on market principles. What we in the West tend to forget is that Russia has had an enormous white man’s burden in the region of the Soviet empire. After the fall of the Soviet Union Russia has subsidised the other CIS countries by at least 100 billion of Euros because of the special energy prices (Remes 2007).
The CIS which emerged from the ruins of the Soviet Union is not a state or empire in traditional terms. What is it then? In his recent article Jakub M. Godzimirski (2007) makes an analysis of the Russian approach to cooperation within the CIS framework. His conclusion is that for Russia the CIS is going to play a diminishing role for plans and designs for the region. On the other hand, oil and gas dependence gives Russia almost automatically an upper hand in the other CIS countries. Godzimirski ends up relativising the role of the CIS as such and emphasising the role of Russian manifold political and economic influence using many organisations and arrangements.
The CIS is far from being the only interstate organisation in the area. In fact a great variety of sub-regional organisations have been established in post soviet space during the last fifteen years. Plans to unify Russia and Belarus as a new federal state have had their ups and downs during the years. In the sphere of military cooperation the most important new alliances are Shanghai Co-operation Organisation which brings together China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan and Collective Security Treaty Organisation where Russia has as its partners Armenia, Belarus, Kyrgyzstan, Kazakhstan and Tajikistan. In economic sphere there are also two major associations: The Common Economic Space comprising Russia, Belarus and Kazakhstan and Eurasian Economic Community which aims at establishing a free trade system between Russia, Belarus, Kazakhstan, Kyrgyzstan and Tajikistan. Most of these organisations are rather new and in many ways their actual relevance remains to bee seen. However we have to make an effort to understand the logic behind all these more or less overlapping organisations.
The rhetoric of democracy is used both by U.S. and the EU. The European Union is using mainly soft and civilian forms of influence, counting also on other international organisations such as European Council and OSCE. One of the challenges for Russia is how to deal with this sort of power. Is there some “geopolitical interests” behind all this new civilised form of influence? Is Russia able to develop similar or analogous forms of soft power itself? Susanna Hast (2007) analyses the relationship between EU and Russia, starting from the concept of “spheres of influence”.
Whatever the mega-trends of the political system in terms of democracy and dictatorship are, it would be naïve to see the European and Western influence only as a civilising project. Remarkable natural resources and energy issues are at least as relevant. For Russia democracy as such has not been a real issue. Especially in this part of the world Russian policy tends to be almost exclusively realistic based on political power and economic interests.
Who would still remember the categorical assurance held out by the Reagan administration to Mikhail Gorbachev that NATO would not advance eastward from its then existing borders. Believing this Gorbachev gave permission for the unification of Germany, and thereafter proceeded to disband the Warsaw Pact unilaterally. In contemporary Europe Russia is at a serious disadvantage with regard to its conventional forces and the disparity is growing every day since the NATO countries refuse to ratify the treaty on Conventional Forces in Europe. Defence minister Sergei Ivanov has several times stated that Russia does not see the reason why NATO’s military infrastructure is getting closer to Russian borders. “During the first wave of NATO expansion we were given solemn assurances that there would be no NATO military infrastructure in the new members’ territory. We were simply duped.” Ivanov said in November 2006.
In Russia and Beijing a fear is growing that U.S. with its new effort to deploy an anti-missile defence system in Europe and with destabilising weapons such as low-charge nuclear weapons and strategic missiles equipped with non nuclear warheads, will provoke a potential full scale nuclear arms race. Washington recently came up with an idea of a “Great Central Asia” strategy which aims at drawing the region toward south Asia – away from Russia and China (Bhadrakumar 2006). There are lots of indicators of closer cooperation between Russia and China. The expanding coordination between Russia and China at the UN, accelerating energy cooperation, Russian readiness to transfer state of the art weapon systems to China, growing Chinese investment in Russia, all this seems to indicate that the Shanghai Cooperation Organisation could be seen as a major geopolitical player by both countries.
4. Russian business in the CIS
In any case the relationship between the great powers in post-Soviet space is far from being stable. One key issue is of course the economic dimension. How Russia is going to use its energy resources and growing economic might in general? How business interests are linked with political aspirations?
Russian foreign direct investments abroad are large and they are rapidly growing. Most of the total stock has been directed outside the CIS. Crane et al. (2006) have shown that only about one-fifth of Russian FDI has gone to the CIS. Investments began to accelerate in 2000 when Russian economy rebounded and also economic growth in the CIS started to pick up. Russians investors seem to favour Kazakhstan, Ukraine and Belarus, but investments in North Caucasus region as well as Moldova are also significant.
Investing in the CIS countries has several reasonable business causes. In most of the CIS countries growth in GDP has been more rapid than in Russia. Consumption is also developing in rather great speed. The climate for foreign investment is improving and rates of return tend to be better than from Russia. Investment in the other CIS countries helps Russian business diversify economic, political, market and financial risks. In comparison with their Western counterparts Russian entrepreneurs can enjoy several advantages. Local people know Russian language. They have family ties as well as academic and professional links from the Soviet era. Russians are also more used than their Western colleagues to work with problems of corporate transparency and management, property rights protection, contract enforcement, organised crime and corrupted public sector. These problems tend to be even worse in the other CIS countries. Russian business has also been active and experienced in participating in privatization. They have acquired major industrial assets such as refineries, power plants and mines. In these operations Russian often use local partners, constructing holding companies or joint ventures in order to avoid political controversy connected with Russian participation. It should also be noticed that in many countries – Armenia, Azerbaijan, Georgia, Kyrgyzstan, Moldova and Tajikistan – the key investors are expatriates working in Russia. They usually invest in small local firms run by families and friends.
All in all, Russian business grip in the CIS region is tightening. Investments of the Russian state controlled enterprises have been most comprehensive but also the large Russian private companies engaged in oil, chemicals and metallurgy have also acquired most valuable assets, for instance Ukrainian oil refineries. Crane et al. conclude however that the only sector in which they have found much evidence in Russian government’s involvement in FDI was the energy sector. This, of course, is not a minor exception. As Dusseault (2007) puts it, the control over natural resources such as oil, gas and water has become a focal point for the development of a majority of the CIS member states. Energy has the power to unite or to divide.
- Frames of energy policy
In order to make my argument I have in a previous article made an effort to present a heuristic model for analysing interaction in energy policy between Russia and other countries (Kivinen 2007). On the basis of this model we can further elaborate our understanding by developing more specified historical hypothesis concerning various forms of interaction. Of course this model works only when put in comprehensive empirical analysis.
The general logic of Russian framework can be seen as comprising three different schemata: Soviet time interdependency, business logic and energy superpower aspirations. The change between them might be depicted as the arrow in figure 2.
Figure 1: Change in Russian energy frame.
The frames are not completely mutually exclusive. Rather the transition can be characterised in this respect as a gradual replacement of soviet time interdependency in non-market form by mere business logic. The idea of an energy superpower comes up with the rise of oil price.
The starting point was interdependency based on Russian planned economy. In an abstract form this can be characterised as follows. All the Soviet Republics had common energy policy and infrastructure. This could not have been immediately replaced by principles of market economy based on world market pricing. Rather we should suggest that in Russia there was a tendency to step by step move closer to normal business logic frame.
The actual starting point can be illustrated e.g. by the case of Ukraine. There were disputes between Ukraine and Russia concerning gas already immediately after the fall of the Soviet Union. In fact Ukrainians never paid for their gas. Tensions between the two countries rose and Gazprom made an effort to force the Ukrainians to pay for gas by withholding supplies. The Ukrainians responded by withholding gas intended for Europe.
“After several episodes, the situation more or less stabilized in 1994 on the basis of cashless trade – Russia delivering gas to Ukraine, and Ukraine allowing transit of Russian exports to Europe -- with side agreement on industrial sectors. In 1994 Ukraine had the only factories in the former USSR for large pipelines (1420 mm and 1220 mm) and small pipelines (219 mm, 325 mm, 426 mm), but depended on Russian factories for midsize pipelines (530 mm and 720 mm). In 1994, 70% of all gas industry workers in Siberia were Ukrainians (as were a majority of Gazprom’s board members), reflecting the fact that the Soviet gas industry was born in Ukraine in the 1920s and the Ukrainian gas pipeline network was – and still is – a vital part of the Russian network” (Guillet 2007, 7-8).
On the other hand the rising oil price created Russia a possibility to consider using energy as a more comprehensive form of power. This could be characterised as an energy superpower frame.
Following Russian media and political discussion there is no doubt that the discourse on energy superpower is plainly present in Russian political discussion (Alcott 2004, Kotkin 2005). One has good reasons to suggests, however, that it is first of all an instrument for domestic political scene. It has a certain appeal to politicians who are hankering for the lost empire. From the business point of view the situation is far less clear. Would it not seem natural to expect that businessmen in energy sector are most of all interested in making profits for their company? And this pure business logic may be even jeopardised by frames which come from the political sphere. This would seem to raise the question to what extent energy superpower ‘cultural schemata’ is a real action frame. It might very well be a mere rhetorical horizon collecting diversifying actors in a same discourse without having a direction to clear interest articulation and real political coherence.
In international relations we have to take into account the complexity of interplay in these issues as well. If the energy superpower discourse is confronted in the frame of power political realism and security discourse, a self enforcing circle of interaction might become in place.
“Russia has become the gravitational focus for many of the anxieties about the security of energy supply in Europe. Widely considered an unreliable energy superpower for which Europe will have to import increasing amounts of energy, particularly gas, Russia poses what is in essence a three-pronged problem: its political reliability, a contrasting political economic approach and questionable the sustainability of its reserves.” (Monaghan 2007, 4)
Also for the other countries the frames for interpretation of energy relation with Russia can be very different. These differences have been tentatively presented as lower lines in figures 3-7. As a starting point for developing more concrete hypotheses concerning the logic of matching frames/schemata, I would argue that we have several cases with rather fundamentally differing dynamics of interaction.
Norway might be a case where the relationship is based almost exclusively on business framework. Russia has no larger political intentions in Norway and both countries share more or less the same ‘cultural schemata’ in this sense. This also implies that the expectations might be realistic on both sides. One should notice, of course, that this shared framework comprises both competition between two energy producers and at the same time partnership and cooperation with regard to technology and possibly join investment projects.
Figure 2: Russian and Norwegian energy frames.
In the case of the CIS countries the starting point is Soviet time interdependency. After the fall of the Soviet Union Russia has subsidised other CIS countries by at least 100 billion of Euros because of the special energy prices (Remes 2007). From this point the relationship is moving towards world market prices and business logic. But none of the CIS countries is at that point of development where they could see Russian energy policy in a pure economic frame. Tendency towards world market prices can be seen in mere business terms. But in all of the CIS countries Russia still has special political interests to promote (cf. Dusseault ed. 2007). Especially during Putin’s term the CIS-dimension of Russian foreign policy has been promoted in many ways. Between Russia and all the CIS countries we can witness a multi-level bargaining game where political orientations and military commitments intertwine with energy issues. We should study more thoroughly the differences between the cases of Ukraine and Belorussia. I would be tempted to argue that the cases differ in terms of the realism of expectations in the way that are presented in figures 3 and 4. Ukraine would have liked to maintain some of the special relations based on Soviet time interdependency. On the other hand Russia would have liked to use energy as an instrument in promoting its political interests within Ukraine.
Figure 3: Russian and Ukrainian energy frames.
Belorussia might have been playing more conscious bargaining game. The Central Asian countries and the Caucasus states are also moving somewhere between Soviet time interdependency and energy superpower framework.
Figure 4: Russian and Belorussian energy frames.
Both sides are using all the cards they have and energy is part of a more comprehensive power struggle. Georgia is the most extreme case where the power political dimension of energy is most evident (figure 5).
Figure 5: Russian and Georgian energy frames.
Within the European Union the security discourse has actualised as a fear that Russia would use energy as a lever to influence EU policies. This debate is especially significant in the new member states of the Union (Monaghan 2007).
For Poland the Baltic Sea Pipeline being constructed to link Russia directly to its market in Germany, avoiding transit through Poland, is seen in highly political frame. Warsaw has even stated that the deal represents a new Molotov-Ribbentrop pact. Recently the Polish Ministry of Economy stated:
The Ministry of Economy confirms its previous assessment of threats caused by the projected construction of the Wyborg – Greifswald pipeline (the Nord Stream gas pipeline) through the Baltic Sea. The investment poses a serious threat to Polish national security. It negatively affects inter alia the transit supply of natural resources through the ‘Jamal’ and ‘Braterstwo’ gas pipelines as well as poses an environmental threat. (27.5.2007)
The different frames that various members of the Union have can be heuristically presented as having a following kind of position as far as Russian energy policy is concerned (figure 6).
Figure 6: Russian and EU energy frames.
Finland is highly dependent on Russian energy. All Finnish natural gas and about 70 per cent of oil are imported from Russia. Finland is importing also Russian electricity. Although Finland is not an energy producing country the situation is not much different from that of Norway in the sense that both Finland and Russia seem to act within the schemata of pure business logic. Finnish dependency on Russia is relative because gas makes up only 12 per cent of the Finnish energy consumption. In terms of oil there is always possibility to buy alternative supplies somewhere else on the world market. Within the Union the case of Germany is close to Finland whereas Poland sees the energy in much more power political terms.
Because of these different frames, energy policy within the Union can not be very coherent. I would argue for more business logic based interpretations in the case of the Union. First of all, from the European point of view energy diversity already exists (e.g. Guillet 2007). A conceptual distinction must be made between a complex diversity of energy type, source and transit route. In all these aspects diversity in Europe is an actual fact.
Secondly, even during the Ukrainian price and transit crisis Russia was rapidly starting to pump gas into the pipelines when it turned out that the European Union countries where having troubles (Guillet 2007). The EU and the CIS are different from the Russian point of view. The CIS might be a field for exploring the possibility to reconstruct superpower status though energy whereas from the Russian point of view the Union is dealt with most of all in the business framework. This does not mean that there would not be competition and contradicting interests.