Is the EU-Russia energy relationship one of dependence or interdependence?

Arbr Gashi

2013

Table of Contents
Introduction ...............................................................................................................3 Two opposing worlds (Russia vs. EU) ...........................................................................4 The Russian Energy Policy towards the EU ...................................................................5 The EU Energy Policy towards Russia ...........................................................................5 Dependence or interdependence ................................................................................7 Conclusion ..................................................................................................................7 References ..................................................................................................................9

Introduction
A big issue has been debated recently on relations between Russia and European Union states regarding gas. Based on the fact, that the economy of European Union and its everyday life it is unthinkable without necessary amount of energy. The European Union, however, depends on Russian gas in order to satisfy its internal energy needs. This definitely makes the European Union weak in relation with other states. Furthermore, Russia as a huge supplier of EU has been undermined by its apparently political use of gas exports, where in 2006 the disagreement with Ukraine, left European countries cold in the middle of winter. As a result of this crisis, not only the Europeans were alarmed about their vulnerability of losing Russians supplies but also this sparked the question if EU can protect itself from hostile Russian geopolitics. Moreover, EU countries are more concerned with fact that dependence on Russian gas is increasing and on the other side the quasi-public company Gazprom is aiming to control some of the major gas companies without offering stable returns. It is the influence of media that is putting a bad image of EU and Russia relations by offering a geopolitical power fight. Unfortunately, this kind of image has produced many economic risks. According to political commentators who tend to describe the economic risks that can be caused by this relation, they believe that market power is derived by an alleged monopoly. As a result of this many possible economic risks could appear in the market such as the manipulation of European market, the chance of unilateral termination of contracts, purposely-insufficient investment in increased capacity to defend long-term high prices, the agreement with Turkey to discourage the building of direct supply lines for Caspian gas to the European states, the agreement with major or dominant distributors in specific market. The fear is that Russia by refusing to bring regulations that are in line with EUs free market legislation and the signature of the European Energy Charter, which could harmonize the relationships between EU and Russia. However, Russia is taking undue advantage of the European market by not respecting the rules of the game. In this way Russia will achieve a monopoly and it will raise prices in the market something that will force the European market to compete with Asian and American markets. Based on these uncertainties one can conclude that EUs depends on gas imports from Russia will increase significantly 3

within next decades, and turning the energy relationships in a long term challenge for the European Union. (Sierra 2010).

The goal of this paper is to analyze the interdependent relationship between Russia and the European Union in terms of gas trade. The paper starts by comparing the nature of EU and Russia, then the energy policies that these two states have towards each other and finally a critical approach about the EU and Russian relationship if it is dependence of interdependence.

Two opposing worlds (Russia vs. EU)

The history of international energy markets shows that global oil and gas industry is the key factor that determined the way of how the world has operate and how it is developed until nowadays. (J.G. Clarke, 1990). In this case it is difficult to understand the gas relationship between EU and Russia without taking into account Russias past and its nature. Russia emerged from the Soviet era and the question is if Russia is a state that is trying to rebuild itself and to retake its former influence. On the other side we have European Union that is not a conventional state, with a deficient military or diplomatic power. Moreover, EU tends to be seen as a main force by promoting a multilateral integration.

The Russian Energy Policy towards the EU

The energy policy and energy security are factors with important strategic role. While, the Russian energy policy has mixed two contradictory tendencies, the first one is the growth of competitive market and the second is to increase the state influence. (Kaveshnikov, 2010). The goal of Russia is to be equal with other big actors of international relations such as US, India or China, and it is trying to achieve this through its energy policy. Moreover, Russia uses it energy to protect its sovereignty and to promote influence in particular countries that were part of the former Soviet Union. (Romanova 2010). Also its economic objective towards EU is to reinforce its presence in the energy market of European Union. The Gazprom is the main tool that Russia is using to promote and influence the European market. Gazprom exports gas to the European countries, it gets around 60% of it revenues from sales to EU market and it contributes with 20% to the Russian state budget. As we can see the export market of EU is the main source of income for Gazprom and Russia, so Russia tends to expand the Gazprom suppliers through the all-European market. (Bilgin 2011). The Gazprom is the main instrument that Russia is using in order to expand its influence in Europe.

Furthermore, a positive indicator that proves this, is the fact of signing long term contracts which help them to save specific market from other competitors. These longterm contracts increase the confidence of Gazprom to invest more resources in different projects. The contracts are signed for 25 to 30 years in order optimize high amount of money that is spent in order to export gas to EU. The main economic and political objective of Russia is keeping the same position in the energy market of EU, through which it will involve Gazprom in pipeline projects within EU market. By having access to different distribution networks and transit pipelines Russia will try to gain direct control over energy markets. (Kaveshnikov, 2010).

The EU Energy Policy towards Russia

The EU energy policy aims to ensure energy security and reduce dependence on imported resources from Russia. Moreover, it is divided in two dimensions, the internal and external one. The main objective of internal dimension is to create a liberalized internal market in gas and electricity. Also the role of government is crucial on the internal energy market because it is the regulatory of the market and also it supports national companies to expand abroad. While in the 1980s begin the regulation of gas sector, in order to improve the economic competitiveness and the energy security. Therefore, it clearly in corrects to say that this regulation is directed against Gazprom, but it should be considered as a important obstacle towards the Russia. (Proedrou 2010) The second objective of EUs energy policy is the external one, where it tends to ensure its energy security by diversifying its gas supply. The European Union has plans to make new gas pipelines called as the southern or fourth energy corridor. These pipelines are assumed to supply the European states with gas from Middle East, the Central Asia and Caucasus. Also in this energy corridor are included many other projects such as the gas pipelines of Trans-Adriatic (TAP), the pipelines that could connect Turkey Greece and Italy (ITGI), the Southern-Eastern European pipelines (SEEP) and finally the Trans Caspian gas pipelines. (Lussac 2010) Based on the fact that the main goal of European energy policy is to diversify transport routes maybe a possible risk for Russia as the main exporter of oil and gas in the EU. By excluding for one moment the economic losses that cold be caused by this policy, also the geopolitical features of Europeans projects can reduce the influence of Russia and its foreign policy. If the European Union implements successfully these projects than the influence of Russia in main areas of interest will be decreased and the revenues gained from the oil and gas exports to the EU market will be reduced. On the other side the chance of constructing new gas pipelines and finding new exporters would reduce the dependency of EU on Russian oil and natural gas. (Kaveshnikov 2010).

Dependence or interdependence
Based on the above information, the relationship between EU and Russia is considered interdepend in terms of piped gas and probably it will remain the same for long time. Therefore, the CEO of Gazprom Alexander Medvedev argued, European States depends on Russian gas, also Russia depends on European gas procurement. This kind of interdependence creates a strong commercial partnership and it offers stability of supply for long time. Furthermore, the former German chancellor Gerhard Schroder declared the same standpoint in his interview for Npszabadsg in 2008 around 70% of Russian exports is focused in Europe and one quarter of Russian revenues are derived from oil and gas selling. Europe depends on gas and Russia depends on customers. This is called interdependence (GERGELY, Npszabadsg Online, 12 April 2008). The chances of European Union to maneuver are small, since the energy policy is not fully regulated at the Union level, also the authority of Energy Committee have not allowed to implement a united Union level energy policy. Therefore, sometimes member states dispute against each other. The fact that European Union cannot be unified regarding energy policy, it is impossible for it to protect its strategic goals. So it cannot be considered as an independent entity, therefore the above-mentioned Russian-EU interference does not provide functional or practical provision. So it will be more practical question to ask what relationships separate member states maintain with Moscow regarding gas affairs.

Conclusion
The relationship between EU and Russia is result of complex interaction of forces, where some of these forces are with economic nature and the others are geopolitical ones. In one side it is the energy trading that consolidates and strength the relationship between EU and Russia. The goal of this paper was analyze and define if the relationship of EU and Russia is one of dependence or interdependence. Based on the contradicting energy

policies that these two states have towards each other on can be concluded that the relationship between EU and Russia can be considered interdependence regarding piped gas. Nevertheless, taking into account that that EU has very limited space to maneuver, because the energy policy is not synchronized at the community level. The fact that the energy policies of both entities EU and Russia are really complicated and difficult to distinguish, it is really hard to analyze this type of relationship and came up with a right answer if this is a clear case of dependence or interdependence between two entities.

References Bilgin Mert, 2011, Energy Security and Russias Gas Strategy: The Symbiotic Relationship between the State and Firms, in: Communist and Post-Communist Studies, Vol. 44, No. 4, 119-127.
Clarke J.G. 1990, The political economy of world energy: A twentieth century perspective. Wheatsaf, Harvester. Gergely, M. 2008, A baloldal nem hagyhat fel a reformokkal [The left wing can- not give up reforms]. [online] Npszabadsg Online, 15 April 2013. Available from Internet: http://nol.hu/archivum/archiv488140.

Kaveshnikov Nikolay, 2010, The issue of energy security in relations between Russia and theEuropean Union, in: Energy Security, Vol. 19, No. 4 (December), 585-605. Lussac, Samuel James, 2010, Ensuring European Energy Security in Russian "Near Abroad": the Case of the South Caucasus, in: European Security, Vol. 19, No. 4 (December), 607- 625. Proedrou, Filippos, 2007, The EU-Russia Energy Approach under the Prism of Interdependence, in: European Security, Vol. 16, No. 3-4 (September-December), 329-355. Romanova Tatiana, 2010, The Confusing Results of the EU-Russia Energy Dialogue Market Making vs. Clean Energy Agenda, Center for EU Enlargement Studies,pdf, 31.8.2012. Sierra, Oscar Pardo, 2010, A Corridor through Thorns: EU Energy Security and the Southern Energy Corridor, European Security, Vol. 19, No. 4 (December), 643-660.

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