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The Ukraine effect

9th December 2013
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How to tackle Russia's policy of the clenched fist


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There was a time not so long ago when it seemed Russia’s ruling elite was genuinely interested in closer ties with the European Union and the western world in general.

During Dmitry Medvedev’s four-year stint as president of Russia from 2008 to 2012, he certainly made all the right noises. Mr Medvedev talked about the need to modernize Russia’s economy and society. He said corruption is a plague which must be tackled and even condemned what he referred to as Russian “legal nihilism.”

All this was music to western ears, but even assuming Mr Medvedev was sincere about his intentions for Russia, current Kremlin boss Vladimir Vladimirovich Putin certainly has other ideas.

Since retaking the presidency in 2012, Mr Putin has continued to poke his finger in the eye of the west, most recently with his tactics in Ukraine, which is now experiencing turmoil as hundreds of thousands protest the decision of President Viktor Yanukovych to forgo the signing of an Association Agreement with the European Union.

But has Mr Putin gone too far this time?

The fallout

I think that Russia’s engagement in Ukraine will have a strong impact on bilateral relations between Brussels and Moscow both in the political and economic realm,” said Jaros≥aw ∆wiek-Karpowicz, an analyst at The Polish Institute of International Affairs. “EU elites recognize that Russia did what it could to hamper the Association Agreement,” he added.

Mr ∆wiek-Karpowicz said the events in Ukraine would “definitely” not help move forward ongoing talks between Russia and the EU on a free trade zone between the two economies. These talks have been going on since 2005 with scant, if any, progress being made. Vladimir Putin does not see the EU as a model to emulate, rather the current Russian leadership is interested in its own development model based on Russian “traditional values and a controlled democracy,” he said.

The Kremlin, Mr ∆wiek-Karpowicz added, fears closer ties with the EU could usher in a change to the political system in Russia and would strengthen the position of opposition political parties in the country. 

Has Vladimir Putin overplayed his hand this time?
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Putin’s disservice

I think Putin has done a big disservice to Russia by being so hard-nosed and aggressive on the Ukraine issue. It showed he is afraid of competition with the EU – the competition of values,” said Judy Dempsey, an analyst at Carnegie Europe who has covered Germany and Eastern Europe as a correspondent for the Financial Times and the International Herald Tribune.

Ms Dempsey said the Russian leader was afraid that the young generation of Ukrainians and other post-Soviet republic citizens would, if brought closer to the EU, start to gravitate towards western values and norms and ultimately, towards liberal democracies.

A second reason for Mr Putin’s aggressive reaction, said Ms Dempsey, was the fact that a trade deal between the EU and Poland’s eastern neighbor would have meant a new set of rules that Ukrainian oligarchs would have eventually ended up playing by. “That, the Kremlin definitely did not want,” said Ms Dempsey.

The energy issue

So what will determine the status of EU-Ukraine relations in the future?

Both Ms Dempsey and Mr ∆wiek-Karpowicz agree that energy issues will be key in shaping future EU-Ukraine relations.

In September of last year, the European Commission opened a formal investigation into suspected market abuses by Russian gas giant Gazprom, focusing specifically on whether Gazprom had used its dominant position in the EU gas market to thwart competitors and push up prices in Central and Eastern Europe.

The Kremlin responded by imposing a law preventing the company from disclosing information to foreign regulators without its permission.

However, last week Gazprom announced it would present proposals to address the EU’s antitrust concerns. “Gazprom expressed its willingness to explore the possibility of a commitment-based solution to the Commission’s competition concerns,” wrote EU Competition Commissioner Joaquin Almunia in an e-mail after meeting the Russian gas company’s Deputy CEO Alexander Medvedev.

It will be interesting to see how the competition issue plays out. Energy matters are definitely a priority for the Kremlin, but Mr Putin and his colleagues might be in for a rude awakening.

The conventional wisdom in many EU capitals used to be that Europe could do business with Russia, especially on energy matters. That has not proven so easy.

There is now a growing sentiment that continuing to trade gas with Russia could hamper the planned liberalization of the energy market in Europe, Mr ∆wiek-Karpowicz said.

Russia’s gas pricing is not based on free market principles and is quite inflexible. This is because what Moscow wants is stable long-term contracts. It needs lots of money to maintain the political and economic system in place,” said Mr ∆wiek-Karpowicz.

If the EU does decide to actively strive at reducing the amount of gas its member states import from Russia, this would seriously weaken the Kremlin’s position vis-a-vis Brussels. However, such a process would likely take many years and cost tens of billions of euros, which the EU does not have right now.

Looking forward

In recent years, Mr Putin’s rhetoric has become more conservative and aggressive both on the domestic and international front. The gloves have been off for some time now.

However, the reality is that dealing with Russia in the foreseeable future will mean dealing with Vladimir Putin, for better or worse. Even though there are encouraging signs of the emergence of a critical civil society in Russia, the country’s political elite still continue to dominate the country with the acquiescence of most average Russians.

Being nice to Mr Putin has not gotten Europe very far but on the other hand, he cannot be ignored or treated as the leader of a third-rate power as some think he ought to be. Yes, Russia’s GDP is heavily dependent on oil and gas prices, but its economy, however old-fashioned, is still the 8th largest in the world, according to 2012 IMF figures.

Furthermore, globalization has not rendered geography irrelevant and Russia’s location works in its favor. The EU will thus have to find a way to deal with the Kremlin. Ms Dempsey said Europe’s key-player, Angela Merkel is now going to take a “tougher stance” on Russia.

The German chancellor has never gotten on with Mr Putin, she said. “Despite this, she tried to reach out but the Russians never delivered. Angela Merkel believes in a EU-Russia partnership of “parallel values.”

The EU has to learn that when you take a stand, you have to stick to it,” added Ms Dempsey. Agreed. What remains now is for the EU to work out a cohesive and effective strategy for dealing with Russia. A strategy which will guarantee the interests of EU member states while at the same time maintaining robust diplomatic, political and economic ties with Moscow. That will not be easy but surely Europe has the brains to figure something out. 

Remi Adekoya


From Warsaw Business Journal


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