Teija Tiilikainen, Director, the Finnish Institute for International Affairs
Susanne Oxenstierna, Deputy Research Director, Swedish Defence Research Agency (FOI)
Yulia Zhuchkova, Research Fellow, Tomsk State University
Tony van der Togt, Senior Research Fellow, Netherlands Institute of International Relations (Clingendael)
Kristi Raik, Senior Research Fellow, the Finnish Institute of International Affairs (FIIA)
Summary of the seminar
SESSION 1: SECURITY RELATIONS
The first speaker of the session, Dr Kai-Olaf Lang, started his presentation by pondering on Russian motivations and how Russian self-described interests have worked out during the past couple of years. According to him there are four drivers shaping Russia’s actions, including towards the EU: Russian leadership follows a doctrine of sovereignty of space, which has led it to create a buffer zone between itself and the West; Russia has come to a conclusion that Europe is not an indispensable partner for Russia’s modernisation; the doctrine of legitimate response, which indicates the defensive mode of action in Russia’s definition of the situation; and the Maidan revolt in Kiev, especially the turning points of February 20th and 21th 2014.
Then Lang spoke about a broader strategic and security context, with a specific look at the role of the European Union and its European Neighbourhood Policy. For a long time Russia saw the NATO and the US as the main threats, but during the last years Russia has started to see also the EU as a threat. This is a paradox – in Lang’s opinion – because the EU is getting weaker all the time and it is extremely inward looking. The EU has been quite reluctant to integrate its eastern neighbours, and the Eastern Neighbourhood Policy (ENP) had impacts without results; one such impact has been for example on the events that led to the Ukraine crisis. This has seemed especially to Russia, but also to the EU, as the end of a perceived geopolitical neutrality of the EU’s actions in its eastern vicinity. In the long run the changes made by ENP are better for all the parties, but in the short run the situation is not self-evident. The reforms the EU is going to implement mean more transparency, more market economy and better governance, and all these changes reduce the leverage Russia has in this part of the world.
Lastly, Lang spoke about Germany’s Russia policy and how Germany’s approach has changed. Earlier the priority was to avoid cutting the natural links between Russia and Ukraine. Now the approach has changed, and what is prevailing is a firm support to the right for Ukraine and other countries to decide of their domestic political organisation, their economic system and their foreign policy alignment. This means that Germany supports the self-determination of the eastern countries and is of the opinion that the EU should create autonomous relations with its eastern partners. Lang also said that Germany considers interdependency between the countries of the region important, but the context of interdependence has changed. Originally, by interdependency Germany meant the deepening co-dependency that led in the end to a change for example in Russia: interdependency was seen as an engine of change and as a stabiliser of the mutual relations. Now rather than fully engaging Russia, Germany engages it only partially. According to Lang this means that Germany moves from a paradigm of partnership to a more minimalistic a realistic model of cooperation.
To conclude, Lang said that Germany maintains diplomatic channels with Russia, applies sanctions if necessary and also supports Ukraine. According to Lang Germany has not a specific strategy in the current situation but rather a flexible way to handle crisis. All in all in Lang’s opinion cooperation with Russia is possible and necessary, but also firm commitment in counterweight is important.
The second speaker Dr David Cadier started his presentation by saying that there is no such thing as ‘EU-Russia relations’ today. According to him, in recent years analysts have too often focused on the empty institutional summits between the EU and Russia or they have reflected on the nature of these two actors and their identities. Instead, we should try to understand the internal drivers and structural determinants of these actors’ policies and actions towards each other. When looking at EU and Russia from this perspective, it can be seen that most of these actions are first and foremost about themselves.
Applying this angle, Cadier reflected on the drivers of Russia’s and the EU’s current policies. He first argued that the context of Russia’s foreign policy making has changed, particularly when it comes to its policies towards the EU. According to him, since the beginning of President Vladimir Putin’s third term Russia’s foreign policy is, even more than before, driven by objectives and imperatives linked to domestic regime consolidation at home. Cadier pointed to three developments over the last 10 years that have increased regime insecurity in Russia: the colour revolutions movement, which has been perceived in the Kremlin as a tool used by the West to promote its geopolitical interest; the financial crisis of 2008-2009 and the decrease of the oil price, which have eroded the social contract underpinning the Putin regime; and the protests in 2011 and 2012 in Russia, which increased president Putin’s personal insecurity and led to a change in his discourse from practical and managerial towards a nationalist agenda and a more conservative discourse. According to Cadier, the measures taken in response to this regime insecurity have affected Russia’s foreign policy, in particular in the context of the Ukraine crisis.
Cadier then reflected on the situation in Ukraine and on EU policies. Cadier argued that the Ukrainian crisis has first and foremost to do with the internal situations of Russia and Ukraine; the free-trade agreement offered by the EU to Ukraine was the spark that ignited the crisis. Where the EU is too blame is maybe for not having better read Russia’s policies and interests and for not having done enough to strengthen Ukraine’s state structures. Now the EU should for example push the elections in Eastern Ukraine in medium-term, as they would truly reveal the degree of legitimacy of the separatists among the population in Eastern Ukraine. Cadier also reflected on the internal structural limitations of EU policies and on divergences among member states.
To conclude, Dr Cadier spoke about France’s Russia policy. According to him, after the terrorist attacks in Paris on November 13th2015, Ukraine will necessarily fade away from France’s foreign policy radar, but Paris will not sacrifice Ukraine for the sake of cooperating with Russia over Syria. He argued that this cooperation will not lead to a permanent and overarching Franco-Russian alliance in world politics. The cooperation can be only fragile because their strategic visions and long-term objectives in Syria are different. Their cooperation has already faced limitations – even if ISIS is a common enemy, Russia and France have no common allies in Syria, Cadier highlighted.
Sir Andrew Wood began his presentation by arguing that there has never been a strategic partnership between the EU and Russia, because the partnership requires equal aspirations, equal assumptions and clear markers, and these requirements have never been fulfilled. He also stressed that for Ukraine, the EU has shown an example of the possibility of open government and of progress in which the people are part of the action. According to Wood, the Ukrainian crisis is not over, and what will happen in Ukraine is decisive for Russia. He argued that even though the world seems to be concentrating on Syria at the moment, Syria is only a distraction in EU-Russia relations.
Secondly Wood said that the EU would like to see Russia in peace with itself and with its neighbours, with a growing economy, securely integrated to the global economy, and Russia reviving its cultural and intellectual heritage as a confident actor in the European framework. Wood highlighted that the previously mentioned aspirations are aligned with an assumption, that there will be a way in which Russia will be integrated in the common European structures. The problem, according to Wood, is the present Russian government that does not share these aspirations.
Next, Wood noted that Russia’s transition towards normality, which they wanted in the beginning of the 1990s, has now been interrupted and revisited. According to him, Russia is moving away from the purpose of achieving the normality in the sense Europe understands it, and also has succeeded in alarming its neighbours. Russia defends itself as a perceived fortress against the West, and President Putin’s ruling aspiration is to overthrow the existing security system of the West. In prospect, a change in Russia’s development is visible, but no one can say when or how or by whom it will happen.
To conclude, Wood said that the objectives of the West and Russia are not aligned. Also, President Putin is very conscious about the vulnerabilities of the West but at the same time he knows that Russian economy is in trouble and he himself is in trouble. Wood said that trust was an empty word too easily brandished as a requirement for the West to pursue as a policy in itself in dealing with Russia. Only concrete steps with accountable outcomes could work in developing a viable relationship between Russia and the West. Mere platitudes would not do that.
SESSION II: EU-RUSSIA – ECONOMIC RELATIONS
Dr Kristi Raik opened the discussion by stating that economic relations play an important role in EU-Russia relations, even though the realist view of international relations considers military power as a dominating force in the world. In these terms there is an asymmetry between the EU and Russia, since Russia is strengthening and using its military power, whereas the EU does not have the military muscle to counter Russia in this field. However, the EU is a major economic power and is applying its economic power in the form of sanctions.
In her presentation, Dr Susanne Oxenstierna took a closer look at the impact of the EU’s sanctions against Russia for both the EU and Russia. The reasons for EU sanctions against Russia are well known – Russia’s invasion of Ukraine, its annexation of Crimea and continued aggression in eastern Ukraine are the major reasons for the sanctions. Russia’s rationale in taking these actions has to do with its discontentment with the current European security order and claims to spheres of influence and Russia’s dislike of the EU’s Eastern Partnership initiatives. Dr Oxenstierna also linked Russia’s actions to internal developments where President Putin doesn’t see any other way of staying in power with the weak economic development ongoing in Russia.
Dr Oxenstierna presented the results of the report by the Swedish Defence Research Agency (FOI) on the impact and the prospects of the EU’s sanctions against Russia. However, she noted that the direct effects of sanctions are hard to evaluate even though there is a large literature on the impact of economic sanctions. The fact that Russian economy is highly politicised makes this assessment even more difficult.
Currently there are sanctions in force against Russia by both the EU and the United States. There have been both financial sanctions and sectorial sanctions. The financial sanctions are targeted at Russian state banks and key companies in energy and defence like Rosneft and Uralvagonzavod. The aim of these sanctions is to limit access to international capital markets.
The sectorial sanctions – that is the export bans – have targeted advanced oil exploration equipment and weapons and other military equipment. The aim of these sanctions is to weaken Russia’s economic prospects in the long term and to also affect its military capabilities.
The effects of sanctions are filtered through several factors in both the domestic and international spheres. General factors that can be considered as having an enhancing impact on the effects of sanctions are the costs for the target state, trade dependence between the target and the sender, and support for sanctions from international organisations. A factor that can have either and enhancing or mitigating effect on the impact of sanctions is the political resource allocation in the target country. If resource allocation is inefficient, then this factor can have an enhancing effect on the sanctions. However, there are also factors that can weaken the impact of sanctions. If the targeted regime is authoritarian, then the state elites are likely not to be harmed by the sanctions, and the target state might have the capacity to manage the effects of sanctions. If the conflict is considered important, this may weaken the effect of sanctions.
As to the impact of the sanctions, they have caused a drop in Russian GDP in the last year, and a quick recovery is unlikely. The factors strengthening the impact of sanctions in Russia are the political economic system that leads to suboptimal economic resource allocation, the fall in oil prices, the increasing budget deficit and high military spending, inflation, currency fall and the substitution of imports, and finally the fact that the EU has stuck together with regard to the sanctions. On the other hand, the factors that have weakened the impact of sanctions are the authoritarian Russian regime that is able to protect economic and other elites, the strong anti-western propaganda in Russia, the opportunities to trade with other countries, and attempts to split the EU.
In conclusion, Dr Oxenstierna stated that the economic sanctions have hurt the Russian economy. In the short run, especially the financial sanctions have been effective. However, the high costs of sanctions are not enough to make Russia change its policy. The EU-Russia relations have been seriously damaged and this will last for a substantial period.
In her remarks Ms Yulia Zhuchkova looked into the unfolding of the economic crisis in Russia. According to her, the main reasons behind Russia’s current economic decline are domestic. Therefore the EU should prepare to face a hugely stagnating Russian economy in the coming years. At the moment the Russian economy is hit by several deteriorating factors that are caused by ineffective governmental management and not by the EU sanctions.
However, the current economic crisis in Russia may not be causing as much damage to the economy as the crises in 1998 and 2008. At the same time, the Russian people do not feel as much deprivation, since the Russian regime explains the economic problems by blaming external actors. The current crisis in Russia was caused by domestic factors that were made worse by sanctions.
The sources of GDP decline in 2015 in Russia include too much consumption spending and the lack of any real measures to tackle the problems of Russian economy by the current government. There are major risks for the economy in 2016. One of these risks is that the consumers will cut spending faster than real incomes fall.
All the currently unfolding political events will not change these basic problems of the Russian economy. However, the support for Mr Putin is still very high, even close to record levels. At the moment the Russian people do not know who will gain power after Putin is gone. There is also a widespread belief that there are several factors that are out of Putin’s control, and conspiracy theories abound.
However, according to Ms Zhuchkova the EU still remains an important investment and trade partner for Russia. Russia’s attempts to diversify its approach towards other trade partners like China are not working. China is not interested in partnership and Russia is still dependent on European investment and technology. Also Russia’s actions in the post-Soviet space are not working.
In his remarks, Mr Tony van der Togt stressed that in dealing with Russia the EU should learn to act more strategically, even though such an approach is not popular with politicians.
When looking at the EU-Russia economic relations before the Ukraine crisis, there seemed to be prospects for more economic integration and cooperation. However, Russia has gradually abandoned the transition and EU-led integration, and has set up the Eurasian Economic Union as a competing union to the EU. The EU’s approach to the EEU should aim at tentative compatibility of the two integration projects.
Before the Ukraine crisis the EU-Russia relations included ever closer cooperation in areas such as the Common Spaces of cooperation, and it was believed that this would work. There were also the prospects of Russia’s accession to the WTO in 2012, the energy dialogue and cooperation and the partnership for modernisation. Back in 2003 there were a lot of positive expectations of the prospects of cooperation. This helped in building a certain constituency that was willing to see this cooperation grow, and according to Mr van der Togt part of this will is still there.
The Ukraine crisis was an end point in a longer development. Russia was not buying into the modernisation process. The political transition has not happened, and Russia is gradually withdrawing from the international rules-based system. The economic transition is not happening either, instead there is growing protectionism or challenging of the Western-dominated economic and financial world order. What brought about the Ukraine crisis was the fear of successful modernisation in Russia’s “Near Abroad” disconnecting Russia.
According to Mr van der Togt, the Eurasian Economic Union has been set up as a competing union to the EU. The Eurasian Economic Union is characterised by a holding together form of regionalism and top down integration with weak implementation of common rules. The Eurasian Economic Union is part of a Russia-dominated geopolitical project, where the idea is that the road to Brussels runs via Moscow. There is a lot of internal tension within the EEU because of Russia’s unilateral economic sanctions.
In conclusion, Mr van der Togt stated that currently any options of a Greater Europe from Lisbon to Vladivostok are not for the near future. There should be more trilateral dialogue between the EU, Russia and Ukraine. The prospects of tentative compatibility include giving the EAP partner countries maximum room for maneuver, keeping bridges open in EEU technical aspects, discussing not only with the EEU Commission and Russia but also with EEU member states, upgrading bilateral relations with Kazakhstan (and Belarus) and using the relationship with China to put pressure on Russia where economic interests coincide.
SESSION III: ENERGY RELATIONS
Professor Gerhard Mangott’s presentation covered the essential statistics of current EU-Russian gas relations. He stated that gas share of the EU’s total primary energy supply has not been this low in more than two decades. This development derives from the diversification away from gas partly due to the rise of renewable energy. Gas consumption and production has been declining drastically after the economic stagnation in 2008. It is estimated that the gas market will rebound in 2030. Russia is the biggest gas supplier to the EU, with Norway in second place and Algeria in third.
Professor Mangott presented a couple of reasons why Gazprom has had a decline in gas sales. First of all the EU has an enormous LNG capacity and the option of alternative suppliers. For example the US and Australia will start exporting LNG in the near future, also to the European countries. Second, the EU has increased energy efficiency and the production of renewable energy. Gazprom’s sales are facing a long-term threat from the increasing gas sales from northern Iraq and Turkmenistan.
The gas bubble is a real issue in Russia according to Mangott. It exists because of the excessive gas production and decreased consumption that is due to economic stagnation in Russia. At the moment there is excessive gas in the domestic market.
On the other hand, gas production in the EU is shrinking, which means that the import gap will rise. The question is how the gap will be filled in 20 to 30 years. Norway still has a high level of output but it will most likely not rise any further. Professor Mangott stated that Finland is completely dependent on Russian gas. For Gazprom the EU is still the main market, even if its demand is declining. Gazprom also has difficulty finding customers in the EU because of the political situation. A new potential market for Russia could be found in China, even though it would not solve the issue of declining demand on Russian gas in the European market. Furthermore, Mangott noted that China is in a better bargaining position than Russia. However, in the long run Russia will most likely increase sales of Siberian gas in the Far East and Asia.
Dr Katja Yafimava noted the politically sensitive situation of 50 % of Russia’s gas exports to the EU going through Ukraine. This creates a political risk since the transit contract between Ukraine and Russia ends in 2019. The recent political developments have also affected the Turkish Stream project. Russia suspended negotiations due to the downing of the Russian aircraft by Turkey in November 2015 and the project may not materialise. If Turkish Stream is built, Yafimava predicts that it will not happen before 2020. On the other hand she sees Nord Stream as a more plausible option, to be finalised in 2019. However, the EU shows resistance towards Russian new gas export pipelines on political grounds. Because of the EU’s Third Energy Package, Gazprom is only allowed to use 50 % of the OPAL pipeline even though no other gas supplier is interested in using the remaining capacity of the pipeline.
Furthermore, Dr Yafimava pointed out the fact that all major gas infrastructures have been built under the jurisdiction of national regulators.
For the EU, there are alternatives to Russian gas. Yafimava mentioned the southern gas corridor from Azerbaijan, the Middle East and Central Asia. However, these alternatives are plausible post 2030. The possibilities of new LNG supplies are also of relevance. The EU recognised a security issue in 2009 when the gas crisis between Russia and Ukraine erupted. However, when it comes to diversifying energy imports, the key question is whether the EU is willing to pay for the alternative infrastructure, even though Gazprom’s supply via already existing pipelines would possibly be cheaper. Yafimava concluded that the EU’s dependence on Russia will most likely continue at least until 2030. However, EU member states in East-Central Europe can diversify their imports by building new LNG terminals and strengthening connections to the rest of the EU.
Dr András Deák described the situation of the EU-Russia energy relationship as an area of disengagement. He presented three factors to demonstrate how the relationship is changing, namely markets, energy policies and politics.
The energy demand in the EU is declining and will stagnate in the future. Deák stated that the EU-Russian interdependence is high but will not increase. Russia has a privileged position on the EU energy market and the EU has exclusive access to the largest hydrocarbon producer in the world, i.e. Russia. In the long term Russia has a chance to keep its one-third share of the EU energy market because of the import gap. Dr Deak noted that disengagement does not mean that the share of Russia in the EU energy market will definitely decrease.
In EU-Russia energy relations, there have been an increasing number of unilateral measures on both sides. The EU gave quite clear signals to Gazprom with the energy package in 2003, which showed the intention of liberalising the EU energy market and unwillingness to invest in interdependence with Russia. The EU-Russian energy relationship is also affected by the loss of political support for more engagement and the growing mistrust. In the current situation there is no desire in most EU countries to invest in energy infrastructure controlled by Russia. Deák also highlighted that after 2009, almost all East-Central European countries have been able to access alternative gas markets and can import gas from non-Russian suppliers, which gives them a benefit when negotiating with Russia. The second major improvement for the EU is that because of the Russia-Ukraine gas crises in 2009 there is now regional cooperation on energy. But much more regional investment and cooperation is needed in order to improve gas security in East-Central Europe.
CLOSING REMARKS
In his conclusion on the results of the event, Dr Arkady Moshes stated that, the EU-Russian strategic partnership does not exist anymore, even though this may not be officially acknowledged. The EU-Russian conflict has become the new normal. Even if the sanctions were lifted there would be numerous unresolved problems that dominated the agenda for a long time before the crisis over Ukraine. Dr Moshes stated that there has been no significant bilateral agreement for over 10 years between the EU and Russia, which symbolises the lack of trust. Because of decisions made by both parties, the economic interdependence is eroding. As has been illustrated by the recent clash between Turkey and Russia, a functioning economic and political partnership can be ruined in a short period of time. In other words: an economic relationship does not guarantee anything anymore. If the EU’s sanctions towards Russia are eased or lifted because of the lack of unity in the EU – and not because the conditions would be met, it would be a disaster for the image of the EU as foreign policy actor. Yet, Dr. Moshes predicted that the EU would ease sanctions eventually. Nevertheless, for now Ukraine will remain a central issue. In this respect, Dr Moshes proposed unbundling and renegotiating the Minsk Agreement, which he viewed as a stillborn document that cannot be implemented in its entirety.
The conference was organized under Eastern Neighbours and Russia: Close links with EU citizens (ENURC), and was co-funded by the Europe for Citizens programme of the European Union. The event involved 114 citizens, including participants from Finland, Austria, Bulgaria, Cyprus, the Czech Republic, Estonia, France, Germany, Hungary, Italy, Latvia, Lithuania, the Netherlands, Poland, Portugal, Sweden, United Kingdom.
