International Politics

	Vol. 227 No. 7
JACQUES SAPIR, CONTRIBUTING EDITOR, FSU

EU-Russian relations after Sotchi. The recent European Union-Russia seminar, held in the pleasant, sunny Black Sea resort of Sotchi, Russia, was no summer vacation for both sides. The meeting was tense, and the gap between European and Russian positions on the Energy Charter Treaty looked impossible to bridge.

For some people, this was to be expected after last January’s “natural gas war” between Ukraine and Russia. Nevertheless, whatever mild or strong words were exchanged between delegations, the very idea of European countries breaking up with Russia on energy doesn’t have much of a future. The possibility that Russia would completely ignore Europe and fully switch to Asian consumers doesn’t sound very realistic.

Interlinking. It is impossible to ignore to what extent decisions taken in Europe depend on ones taken in Russia and vice-versa. One example is Germany’s decision to move out of nuclear energy. This was a long-standing demand of the Green party that the SPD party approved in the 1990s. Such a decision implied greater reliance on gas to generate electricity. This, in turn, implied that Russia could be a long-time, reliable gas supplier to Germany. This is only possible, because Russia has developed its own nuclear energy program, which then saves enough gas to sell outside. 

A major European decision was possible, but Russia made another one, this time right in the opposite direction. The point is not to argue that Germany’s Green politicians have been “green enough” to act as parochial free-lunchers. What matters is the fact that decision-making on energy issues is clearly interlinked. Another example is Russia’s reliance on classical gas pipelines. It could have been decided, years ago, to switch to liquid gas transport. However, Russian decision-makers took for granted that European countries would be happy with traditional technology and would provide industrial assistance to make the gas pipeline network both effective and efficient. Via this decision, Russian authorities have, somewhat, linked their fate to Europe.

One could argue that both sides can now make different, strategic industrial decisions. Russia will develop LNG technology, and one can wonder if Germany can live forever without nuclear energy. After all, German industrialists are heavily involved in AREVA, the big French-German nuclear company. Still, even if current choices could be marginally amended or changed, there are realities nobody can ignore.

Realities. The first reality is that Russia is a central actor in global energy markets, because it’s the only country with strong capabilities in every field. Above all else, Russia is first globally in natural gas and still an important player in oil. The latter is more so, as doubts grow about actual reserve levels in Saudi Arabia. Russia has a strong capability in nuclear energy, even if it lags a bit behind European technology. If non-polluting coal uses develop, Russia stands again as an important player, and its reserves in biomass and bio-fuels are known to be very important. Last but not least, geothermal energy could be developed in Russia’s Far East, and the Russian industry has capacities to develop solar cells or windmill generators. No other country in the world can boast such a capability spectrum in energy.

But there is another reality. Russia’s export capability could be significantly reduced by 2015 without European technology. Internal energy consumption is growing much faster than production. Even if massive investments are made in the next 10 years, production will yield a decreasing return. On the other hand, Russia wastes a lot of energy. Russian industry is not efficient. One needs three times the energy used in Europe to make one ton of steel in Russia. The housing sector is also highly energy-inefficient, mostly because most Russian cities have been built in the 1950s to the 1970s, and buildings now need to be replaced by more modern construction. European countries – Germany, France, Italy and the Netherlands, have developed, considerably, energy efficiency enhancing technologies. If Russian officials want to address energy efficiency, they don’t have much of a choice.

Lack of focus. If Europe needs Russia and Russia needs Europe, why did the Sotchi meeting turn sour? One answer is that the EU came to the meeting without a clear strategy. The Brussels Commission is partly to blame. By focusing on competitive issues without addressing industrial strategy, Brussels bureaucrats missed the boat by a wide margin.

But not all the blame can be put on their shoulders. Among the current 26 EU countries, some would have wanted to cut a deal with Russia, but others resist this idea, mostly for political reasons. One can understand psychology preventing countries like Poland, Hungary or the Baltic States from embracing a strategic partnership with Russia. However if not Russia, then who can be the partner, and who will pay the fuel bill? Some of the new-entrant countries can oppose the partnership idea, but they don’t have an alternative. Europe’s main failure at Sotchi is not coming to terms with the actual situation.

One can also argue that Russia’s strategy was less than clear-cut. So far, Russian authorities are oscillating between short-term maximization and long-term targets. But they cannot have both. Is it in Russia’s interest to maximize current income flow (with a monthly trade balance surplus of $12 billion) or emphasize long-term development and stability? This choice must be made by Moscow. If there was one Russian failure at Sotchi, this was it. 

Lessons for the future. One lesson from Sotchi is that long-term interests don’t translate smoothly and naturally into instant policies. Policymaking implies defining long-term strategies and identifying means to implement them. For different reasons, mostly institutional in the EU, and partly political in Russia, neither relevant strategies nor instruments have been identified. Partnership could then turn into a conflict, because of both sides’ lack of political vision. To overcome the situation created in Sotchi, both the EU and Russia need to consider implementing some serious revamping of their decision-making systems.