Energy Relations Between the European Union and Russia: Economic and Political Perspectives

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Table of Contents

Introduction
Historical Background of Russia-EU Energy Relations
Case Study 1: Russia-Germany Energy Relations (1998-2005)
Case Study 2: Russia-Ukraine Gas Dispute (2005-2009)
Case Study 3: The South Stream and the Turkish Stream Projects
Conclusion
Works Cited
Footnotes

Introduction

In the economic and political relations between Russia and the EU, the matter of energy continually remains one of the most important, complicated, and debatable issues. The relationship between Russia and the European Union demonstrates an obvious interdependence of the two, where Russia is an essential supplier of energy, and the EU is a crucial market space for energy sales. In such a situation, it might be expected that both parties would be interested in developing collaboration, mutually beneficial; however, this relationship is characterized by constant conflicts. Energy relations represent a field where economic factors are strongly intermingled with the political strategies, different and often opposite in the case of Russia and the EU.

This paper will explore and discuss several issues between the EU and Russia concerning energy relations, providing their historical context, and examining the economic and political perspectives of both parties.

In the first part of the research, a brief historical survey of the development of the Russia-EU relationship will be provided. In the second part, the three case studies will be investigated with the analysis of the political and economic perspectives of the parties. The first of the cases is “bilateral” energy cooperation between Russia and Germany as an individual financial subject of the EU (Tichý 137). The second case is the Russia-Ukraine conflict of 2014, which distinctly exemplifies the collision of the interests of Russia and the EU.

The third case represents further consequences of the conflict manifested in projects of the gas transportation pipelines, such as the South Stream (not implemented) and the Turkish Stream. In the last part of this study, a conclusion about the motivation that underlies the actions of Russia and the EU, and the interconnection of the political and economic reasons for such activities will be made. The objective of the research corresponds to the aim of reaching a better understanding and mutually beneficial decisions for both parties, which is a matter of continued relevance.

Historical Background of Russia-EU Energy Relations

Energy is the central factor of economic processes in modern societies. Therefore, issues related to energy availability, sustainability, and affordability can lead to severe implementations for every field of social reality. In addition to it, in the energy sector, economic factors are strongly intermingled with political interests, and underlying reasons for the former are often attributable to the latter. The energy relationship between Russia and the EU significantly demonstrates such interconnection.

For the European countries, Russia’s contribution to the energy supply became sizeable in the 1980s (Aalto 23). It was the time for searching for the new model of the relationship between the two formerly opposing politico-economic blocks in the post-Cold War era. The idea of partnership seemed desirable for Russia as a supplier and the EU as a consumer of energy resources. The energy demand of Europe far exceeds its energy resources (Böhme 18), making it dependent on the external supply. At the same time, Russian economic development is determined to a large extent by the EU market for energy sales. It was proven by Russia’s escape from the economic depression of the 1990s and its economic uplift of the 2000s.

The study, published in 2007 by the European Council of Foreign Relations, provided the following data about the cooperation of different EU members with Russia (Leonard and Popescu 2007). The “most enthusiastic” towards the collaboration were Greece and Cyprus; Germany, Spain, France, and Italy took the place of the “strategic partners.” Almost all the rest countries of the EU were defined as “friendly pragmatists,” while Poland and Lithuania were characterized as the most skeptical members.

The statistical survey of the EU states that in 2007-2017 “Russia has maintained… its position as the leading EU supplier of the main primary energy commodities – hard coal, crude oil and natural gas” (Eurostat 14)¹. Thus, the EU’s interest in the partnership with Russia is essential and based on the demand for energy security, which means affordable prices and constant supply. On the other hand, for Russia, access to the EU markets not only provides economic benefits but also ensures the stability of the state, as well as self-confidence in international politics.

Since the beginning of economic cooperation, Russia and the EU were pursuing their objectives, which, as many case studies demonstrate, might be different and often contradictory. The act of legislation of the terms of the relationships, the Agreement on Partnership and Cooperation, was composed in 1994. However, it was not ratified by the EU before 1997 because of the Russian position in the First Chechen War (David and Romanova 1). Since then, many aspects of the collaboration have transformed; nevertheless, the presence of specific political reasons for economic disputes remained constant.

With the purpose to illustrate the specificities of the Russia-EU relationship, the three case studies will be further examined. The first of them relates to the Russia-Germany collaboration in the energy sector as an illustration of the position of the individual EU member as an actor in energy dialogue. The second case will discuss the Russia-Ukraine conflict as an example of the role of the transit country. The third case will consider the implications of the second one, discussing Russia’s turn to the alternative projects in the field of energy trade, such as the South Stream and the Turkish Stream. Thus, the three of the most considerable, in the context of the Russia-EU relationship, conflict situations will be investigated: pricing, transit, and future strategic projects.

Case Study 1: Russia-Germany Energy Relations (1998-2005)

This case can demonstrate a policy of price formation of the EU energy market and the implications of the turn of the EU member to a bilateral mode of cooperation with the external resource supplier before multilateral. Such a model was established in 1998-2005, at the time of Gerhard Schröder’s chancellorship in Germany. As Westphal points out, “the Schröder Government… used its strong personal ties with President Putin’s administration” (93). He further argues that, though bringing benefits for several German companies, it undermined a standard European approach in international energy relations.

Germany started to receive natural gas supply from the USSR in 1973, before the end of the Cold War. It caused criticism of the US (Westphal 96), which at that time had a considerable role in the European energy market, providing a significant amount of coal. At the beginning (1970-the 1980s), the model of Russia-Germany collaboration could be depicted as “gas in exchange for technology” (Westphal 96). Russia ensured maintaining reduced prices, and Germany took responsibility for providing the technological quality of the pipelines and the institutionalized management of the transportation process. As these relations were developing, connecting ties of the economics of the two countries were strengthening; for example, German companies gradually developed activity in different fields of the economy in Russia.

Since the 1980s, Germany had a privileged place in the EU in the energy trade with Russia, and the implication of it was seen mostly negatively. As Tichý argues, any bilateral cooperation “undermines… the efforts to create a single energy policy” within the EU (138). The pressure of Brussels on Germany came with a claim for setting the transparent price structure, and non-discriminatory access to the supply network. Ultimately, when in 2005, Angela Merkel assumed the position of a new Chancellor, the German government started redefining the relationship with Russia. The process was intensified after the Ukrainian dispute in 2006 when Russia’s actions were highly criticized by the EU.

Case Study 2: Russia-Ukraine Gas Dispute (2005-2009)

The gas is transferred from Russia to the EU’s countries via pipelines. Ukrainian pipeline, built at the time of the Cold War, is one of the three main networks². The energy conflict between Russia and Ukraine, which started in 2005 with the disputes about the cost of gas transit, culminated in 2006 when Russia cut the energy supply. The claim was about the payment for the energy transported to the EU and withheld by Ukraine as a means of protest against the high prices set by Russia. Later, the situation was resolved; however, the relations between the two countries remained tense; the conflict resumed again in 2008-2009, which affected several EU countries by cutting off the gas supply.

By several actions of protest, Ukraine was trying to impose the measures against Russia’s “energy game” (Godzimirski 106) based on its monopoly in the European energy market. The continuation of the conflict ultimately led to the Russian military intervention and annexation of Crimea in 2014, which was the reason for the further deterioration of unsteady relations with the EU. Europe once again received proof of Russia’s temptation “to use… energy ‘indispensability’ to achieve some advantages” (Godzimirski 93), neglecting the boundaries of mutual agreements. Once again, the politicized character of Russia’s actions on the international energy market has been depicted.

Case Study 3: The South Stream and the Turkish Stream Projects

After realizing the instability of the relations with Ukraine, Russia started searching for alternative ways for energy to reach its final customers in the EU, as well as new markets. The first of such projects was the South Stream network which was intended to transport gas to Central and South-East Europe; however, the project encountered an obstacle, implemented by the EU regulatory policy³. The events in Ukraine led to increasing pressure from Europe, and in 2014 Putin declared the cancellation of the project.

As a more successful alternative, a plan of the Turkish Stream appeared after the demise of the previous one. Russia aimed Turkey to become not only the allied transit country but also the new energy market area. In 2016, however, after widely discussed “jet crisis” when the Turkish jet shoots the Russian aircraft⁴, the military and economic tension between the two countries accelerated. As President Erdogan stated, “Turkey does not purchase the Russian gas if it is necessary, Russian jets violated Turkey’s space” (Varol 213). Despite all the interruptions, the project was completed, and the pipeline network was launched in January 2020, providing an alternative way for Russia to circumvent the EU economic and political sanctions in the energy market.

This case study demonstrates that, as Godzimirski argues, despite “the dream of merging with the West,” Russia often acts as “the most vociferous critic of the West” (106). He finds the reason for that in the “enormous energy revenues,” which, as he adds, comes to a large extent “from its energy trade with the West” (Godzimirski 106). The difference in the approach of both parties seems to be not a result of purely economic matters, but an outcome of their different historical backgrounds, political structures, and ideologies.

Conclusion

The historical background and the three cases of Russia-EU energy relations examined above, illustrate the fact of the interrelations of the economic factors with geopolitical questions, which is particularly apparent in the energy field. Firstly, the case studies demonstrate that, despite its concern of the collaboration with the EU, Russia, through its economic measures, often seems to behave as its political opponent. Secondly, they depict the situation of the twenty-first century’s globalized world, where interdependencies are increasing in scale. In such circumstances, the problems on the national level imply international issues and, therefore, require a high level of mutual understanding of the countries and their honest commitment to the collaboration.

Works Cited

Aalto, Pami. “The EU-Russia Energy Dialogue and the Future of the European Integration: from Economic to Politico-Normative Narratives.” The EU-Russian Energy Dialogue: Europe’s Future Energy Security, Ashgate Publishing, 2008, pp. 23-42.

Böhme, Dimo. EU-Russia Energy Relations: What Chance for Solutions? A Focus on the Natural Gas Sector. Universitätsverlag Potsdam, 2011.

David, Maxine, and Tatiana Romanova. “Introduction: Modernisation in EU-Russian Relations: Past, Present and Future.” Modernisation in EU-Russian Relations: Past, Present and Future, edited by Maxine David and Tatiana Romanova, Routledge, 2017.

Erşen, Emre. “Evaluating the Fighter Jet Crisis in Turkish-Russian Relations.” Insight Turkey, vol. 19, no. 4, 2017, pp. 85-103.

Eurostat. Energy, Transport and Environment Statistics. 2019 ed., Publications Office of the European Union, 2019. Web.

Godzimirski, Jakub M. “Russia–EU Energy Relations: From Complementarity to Distrust?” EU Leadership in Energy and Environmental Governance: Global and Local Challenges and Responses, edited by Jakub M. Godzimirski, Springer, 2016, pp. 89-112.

Leonard, Mark, and Nicu Popescu. A Power Audit of EU-Russia relations. European Council on Foreign Relations, 2007. Web.

Siddi, Marco. “The Role of Power in EU–Russia Energy Relations: The Interplay between Markets and Geopolitics.” Europe-Asia Studies, vol. 70. no. 10, 2018, pp. 1552-1571.

Tichý, Lukáš. EU-Russia Energy Relations: A Discursive Approach. Springer, 2018.

Varol, Tugce. “The Turkish-Russian Relations in the Context of Energy Cooperation.” Contemporary Russo–Turkish Relations: From Crisis to Cooperation, edited by Ali Askerov, Rowman & Littlefield, 2018, pp. 203-222.

Westphal, Kirsten. “Germany and the EU-Russia Energy Dialogue.” The EU-Russian Energy Dialogue: Europe’s Future Energy Security, edited by Pami Aalto, Ashgate Publishing, 2008, pp. 93-162.

Yafimava, Katja. The EU Third Package for Gas and the Gas Target Model: Major Contentious Issues Inside and Outside the EU. Oxford Institute for Energy Studies, 2013.

Footnotes

Detailed data is represented in table 1.2.1 (Eurostat 15).
The other two are the Yamal–Europe pipeline (via Poland and Belarus) and the Nord Stream pipeline (Russia-Germany network via the Baltic Sea) (Siddi 1559).
The Third Energy Package (see Yafimava 2-9).
On this issue, see Erşen 85-103.

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