Europe’s Eurasian op­por­tu­nity

Financial Mirror (Cyprus) - - FRONT PAGE -

The global en­ergy sys­tem is chang­ing fast, fu­el­ing wide­spread anx­i­ety about so-called “en­ergy in­se­cu­rity,” par­tic­u­larly in Europe. The prob­lem is not that the world is run­ning out of en­ergy re­sources. On the con­trary, oil scarcity is less of a con­cern to­day than ever be­fore, ow­ing not only to en­ergy-ef­fi­ciency ini­tia­tives, like the Euro­pean Union’s nearly zero-en­ergy build­ings pol­icy, but also to ris­ing com­pe­ti­tion be­tween shale pro­duc­ers and tra­di­tional oil ex­porters. Con­tin­ued tech­no­log­i­cal progress sug­gests that re­new­able en­er­gies – from wind and so­lar to, per­haps, plan­e­tary winds – may ul­ti­mately sup­plant fos­sil fu­els, any­way.

In­stead, the in­se­cu­rity is po­lit­i­cal in ori­gin, with short-term considerations, es­pe­cially with re­gard to Rus­sia, over­whelm­ing a co­her­ent en­ergy – and, to some ex­tent, for­eign – pol­icy. This short­sight­ed­ness is gen­er­at­ing se­ri­ous se­cu­rity risks, fu­el­ing geopo­lit­i­cal in­sta­bil­ity, and un­der­min­ing eco­nomic growth. It is time for a new ap­proach that lever­ages the in­ter­con­nect­ed­ness of our en­ergy sys­tems, economies, and strate­gic re­la­tion­ships to build a more sta­ble, ef­fi­cient, and pros­per­ous world.

The first step is un­der­stand­ing how th­ese is­sues are re­lated to one an­other. The Krem­lin’s an­nex­a­tion of Crimea and its sup­port for vi­o­lent sep­a­ratists in eastern Ukraine prompted the United States and Europe to im­pose in­creas­ingly strin­gent eco­nomic sanc­tions against Rus­sia. The ru­ble fell by more than 50%, fu­el­ing in­fla­tion and forc­ing Rus­sia’s cen­tral bank to hike in­ter­est rates, im­ped­ing eco­nomic growth. The credit-rat­ing firm Stan­dard & Poor’s has now cut Rus­sia’s credit rat­ing to junk sta­tus, push­ing the ru­ble even lower.

But, though cheaper Rus­sian en­ergy im­ports should ben­e­fit Europe, the ef­fec­tive­ness of West­ern sanc­tions is not en­tirely good news. A fi­nan­cial cri­sis in Rus­sia, to­gether with col­laps­ing en­ergy prices, would crash the Eurasian econ­omy, with se­ri­ous reper­cus­sions for EU mem­bers that de­pend heav­ily on ex­ports to the re­gion.

Euro­pean lead­ers are well aware of the risks their economies face. Dan­ish For­eign Min­is­ter Martin Lide­gaard and Ger­man For­eign Min­is­ter Frank-Wal­ter Stein­meier have warned of the po­ten­tial eco­nomic and po­lit­i­cal fall­out of con­tin­ued sanc­tions, while French Pres­i­dent Fran­cois Hol­lande has called for their de-es­ca­la­tion.

Such a shift will of com­mit­ment by Rus­sia to

course re­quire a con­vinc­ing last Septem­ber’s Minsk Pro­to­col, which was sup­posed to se­cure a cease­fire in Ukraine. But, de­spite the force with which in­ten­si­fy­ing eco­nomic hard­ship and diplo­matic iso­la­tion are push­ing the Krem­lin to­ward co­op­er­a­tion, a po­lit­i­cal com­pro­mise must be han­dled care­fully.

Specif­i­cally, if Rus­sians be­lieve that their lead­ers have buck­led un­der pres­sure, they might protest, desta­bil­is­ing the coun­try in a way that would ben­e­fit nei­ther Rus­sia nor the West. By en­sur­ing that the agree­ment aligns, to some ex­tent, with the rhetoric of Rus­sia’s strate­gic pos­tur­ing, West­ern lead­ers would pro­vide the Krem­lin a min­i­mally risky es­cape route from the cur­rent dead­lock.

Rus­sian Pres­i­dent Vladimir Putin would have much to gain from such a deal, not least with re­gard to the Eurasian Eco­nomic Union, which was re­cently un­veiled to lit­tle fan­fare. Given Rus­sia’s grow­ing alien­ation from its re­main­ing part­ners, es­pe­cially Be­larus and Kaza­khstan, which are determined to pre­serve their neu­tral­ity in the con­flict be­tween Rus­sia and Ukraine, the EEU cur­rently seems un­likely to ful­fill Putin’s am­bi­tion of serv­ing as a cred­i­ble ri­val to the EU. In­deed, it may not even sur­vive.

Kaza­khstan, for one, has not been shy about its reser­va­tions. Shortly af­ter Putin de­clared, at last Au­gust’s Seliger Youth Fo­rum, that “Kaza­khs never had a state of their own” be­fore 1991 (a state­ment that re­flected the same geopo­lit­i­cal chau­vin­ism that has characterised Putin’s Ukraine pol­icy), Kazakh Pres­i­dent Nur­sul­tan Nazarbayev ex­plic­itly threat­ened to leave the project. “As­tana,” he vowed, “will never be in an or­gan­i­sa­tion which rep­re­sents a threat to the in­de­pen­dence of Kaza­khstan.” But the EEU is first and fore­most an eco­nomic group­ing, a point that Nazarbayev, who first in­tro­duced the idea of a Eurasian al­liance back in 1994, has al­ways em­pha­sised. On that front, Rus­sia may well be an even less ap­peal­ing part­ner nowa­days.

In this con­text, the Cen­tral Asian re­publics are al­ready hedg­ing against Putin’s ir­re­den­tist am­bi­tions, by pur­su­ing closer ties with the EU and China. The ques­tion re­mains whether diver­gent vi­sions for eco­nomic co­op­er­a­tion in Cen­tral Asia al­low for a long-term sym­bio­sis be­tween the Krem­lin­spon­sored EEU and China’s Silk Road Eco­nomic Belt strat­egy, which would ex­pand trade and in­vest­ment into Rus­sia’s “near abroad.”

With China’s grow­ing in­flu­ence in the post-Soviet space en­abling the Cen­tral Asian re­publics to em­brace a so-called “multi-vec­tor” for­eign pol­icy, a shift in the bal­ance of power will ben­e­fit Rus­sia’s for­mer client-states by in­creas­ing their lever­age for ne­go­ti­a­tion within the newly es­tab­lished en­tity. The EEU would thus have a chance to de­velop be­yond a Rus­sian neoSoviet in­te­gra­tion scheme and be­come a uni­fied and dy­namic eco­nomic area.

This would rep­re­sent an im­por­tant op­por­tu­nity for the EU, which has a strong in­ter­est in a rein­te­grated Rus­sia and a po­lit­i­cally sta­bilised Cen­tral Asia. As Rus­sia’s Am­bas­sador to the EU Vladimir Chizhov re­cently stated, on­go­ing sanc­tions need not pre­vent the EU and the EEU from main­tain­ing of­fi­cial con­tact. Such an ap­proach could ad­vance Europe’s ef­forts to im­prove its en­ergy se­cu­rity and con­trib­ute to a more sta­ble geopo­lit­i­cal en­vi­ron­ment, with­out un­der­min­ing progress to­ward other in­ter­re­gional co­op­er­a­tion agree­ments, such as the Transat­lantic Trade and In­vest­ment Part­ner­ship with the US.

By build­ing on ex­ist­ing in­ter­de­pen­den­cies, Euro­pean lead­ers could help to lay the foun­da­tions for a shared legal and in­sti­tu­tional frame­work that im­proves en­ergy-sup­ply ad­min­is­tra­tion and ex­pands op­por­tu­ni­ties for eco­nomic ex­change among EU and EEU mem­bers. For EU lead­ers, the time has come to think ahead.

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