EU-Russia Forum

Political Modernization

• Demodernization: Russia’s political system is experiencing political de-modenization as a result of Prime Minister Vladimir Putin’s emphasis on centralization and unity, explained Carnegie’s Nikolay Petrov. As power shifts from the regions, the central management system is becoming increasingly overburdened and statist, characterized by a paralyzed decision-making mechanism, Petrov argued.
   
• Reforms: Political reforms are necessary, Petrov continued. However, as long as the current system can generally accommodate contemporary social, economic, and political demands, change is not inevitable. Any modernization is likely to be a reaction to systemic crises, rather than the result of progressive evolution, Petrov concluded. He elaborated that Putin is facing a Brezhnev/Gorbachev dilemma—he could attempt to sustain a personality-driven system or he could start reforms slowly without a clear understanding of the final outcome, respectively.

Economic Development and Diversification

• Economic Slowdown: Carnegie’s Sergey Aleksashenko listed a number of significant issues inherent in Russia’s economic situation that will significantly inhibit its future growth, including:
   
  • the decline in Russia’s growth rate; 
     
  • its increasing dependence on exports of oil, gas, and raw materials;
     
  • its deteriorating investment climate, characterized by privatized law enforcement agencies, serving only the interests of the elite, and creating an insecure and unattractive environment for investors.
     
• Potential Consequences: A lack of foreign and domestic investment is directly inhibiting the energy sector’s diversification and the exploration of untapped resources, Aleksashenko said. Furthermore, he argued, the economy is vulnerable to external market fluctuations through a budget balanced against a very high oil price (currently $105 per barrel).
   
• Political Change: Aleksashenko concluded that the economic reforms necessary to ameliorate this situation are only possible if coupled with political change, at which point European investment could become a key driver for Russian modernization.

Social and Grassroots Drivers of Change

• Russian Society: Carnegie’s Sam Greene explained that the Russian electorate views elections as mostly meaningless. This popular skepticism is demonstrated in the decline in the Putin/Medvedev tandem’s approval ratings, which are ten points below where they were several years ago. Greene said the situation is troublesome for any “one-party” political system, which is characterized by the lack of a political alternative and whose approval ratings are akin to a measure of loyalty.
   
• Grassroots Mobilization: Russians, Greene said, may not mobilize for elections, but they will mobilize for areas of individual interest. This type of social grassroots mobilization is not something that the current system of public institutions is designed to handle. There is no mechanism in place for constructive dialogue leading to a workable compromise, he said.

The Transatlantic Dimension

• Euro-Atlantic Security: Any discussion of future Euro-Atlantic security ought to involve Russia from the outset, explained Carnegie’s Ambassador James F. Collins. Furthermore, he pointed out, the EU-Russia bilateral relationship would benefit from being examined in the context of transatlantic relations and Euro-Atlantic security.
   
• EASI: The Carnegie Endowment’s Euro-Atlantic Security Initiative (EASI) is developing a framework to re-examine shared interests as the starting point to rehabilitate the faltered relationship between West and East. Collins drew attention to three major issues within the security project: missile defense, economic and energy security, and resolution of regional protracted conflicts and reconciliation between Russia and its neighbors.
   
• Future Advice: Collins counseled Russians, Europeans, and Americans to work as stakeholders and  partners in developing this new security paradigm for the broader Euro-Atlantic region and to create support structures that will guarantee the project’s continuation.

Russia in an Asian Century?

• Russian Foreign Policy: Russia defines its key foreign policy relationships with the United States, the European Union, and China in the context of its evolving post-communist and post-imperial identity, and in the pursuit of modernization resources from abroad, Carnegie’s Dmitri Trenin said.
   
• Strategic Cooperation: Trenin called for Russia and the United States to lay the groundwork for strategic cooperation to replace the residual post-Cold War strategic adversity. A security community in the Euro-Atlantic area, he observed, is the right concept to aspire to in an environment of threats and risks to the U.S., EU and Russia being located outside of the former central battlefield of the Cold War. Trenin also noted that the U.S.-Russia relationship is heavily influences the EU’s own bilateral relationship with Russia.
   
• Sino-Russian Relationship: With regard to Russia’s relationship with China, Trenin said that Russia is steadily adjusting to the China’s rise. The partnership and good-neighborliness between the two countries, which have succeeded the Sino-Soviet confrontation, are valued in Moscow and Beijing. Russia, however, needs a strategy to develop its eastern regions, join the Pacific community as a Euro-Pacific power, and keep long-term relations with China on an even keel.
   
• Eastern Neighborhood: Trenin elaborated on Russia’s relationship with Ukraine and the other states in New Eastern Europe. He noted the difference in Russian and EU interests in their common neighborhood. He stressed, however, that it is up to the countries in the region themselves to define their economic, political, and strategic orientation and their future international role.

Carnegie’s Matthew Rojansky identified the U.S.-Russia relationship as one that chronically suffers from unanswered questions, unresolved statuses, and unsatisfied interests.

• Why Russia Matters: The United States’ relationship with Russia is important because of Moscow’s nuclear arsenal, its ability to swing votes at the UN Security Council, the two countries’ overlapping geopolitical interests and global energy concerns, and Moscow’s potential to help Washington address the novel challenges of the twenty-first century such as terrorism and nuclear-proliferation.
   
• American Triumphalism: The United States, Rojansky argued, continually fails to recognize Russia’s uniqueness and to treat the relationship accordingly. In dealing with Russia, America displays a combination of triumphalism—claiming the bilateral relationship reflects a U.S. victory in the Cold War—and naïve optimism, imagining an abandonment of the zero-sum game and no conflicts of interest between the two nations.
   
• A Political Reset: The reset has been a highly personality-driven policy, facilitated by the election of President Barack Obama in the United States and Dmitry Medvedev’s leadership of the Russian Federation. It is bound to suffer setbacks, however, during the upcoming national campaigns in both countries.
   
• Institutionalizing the Relationship: Rojansky called for institutionalizing the U.S.-Russia relationship with permanent committees and concrete procedures to protect it from changes at the political level and a lack of will at the bureaucratic level. In the short term, he suggested a formalized management of the bilateral relationship that encourages honest communication between political leaders and seeks to ensure that, in a moment of crisis, the relationship does not default to the status quo of the past twenty years.

Thawing Conflicts

• EU policy: Dr. Katarzyna Pełczyńska-Nałęcz, head of the Centre for Eastern Studies’ Brussels office, said the EU policy toward its Eastern neighbors is a continuation of an enlargement modernization policy that promotes the European political and economic model, but does not include likely membership in the union.
   
• Eastern Partnership: After the Arab Spring, the EU has reconsidered its policy vis-à-vis the Eastern neighborhood, said Pełczyńska-Nałęcz. It has deepened engagement with its neighbors by emphasizing liberal values and democracy promotion; demonstrating its readiness to engage in conflict resolution; and implementing tougher conditionality for funding, where funding is directly tied to the speed of internal reforms.
   
• Challenges: Pełczyńska-Nałęcz expressed concern regarding the practical applicability of this new EU policy, noting a conflict of interest between European liberal values and its energy policies. For instance, the EU’s continued energy relations with Russia imply approval of harmful Russian practices in the oil and gas sector. A further issue, she noted, was the discrepancy observed between the rhetoric and actual adoption of economic and democratic reforms within certain neighborhood countries, such as Belarus and Moldova. Lastly, Pełczyńska-Nałęcz addressed the fact that the lack of EU conflict resolution mechanisms makes it more difficult for the EU to realize its ambitions.
   
• EU-Russia Cooperation: Pełczyńska-Nałęcz was skeptical about the potential for EU-Russia cooperation, noting their competitive economic and security integration projects as well as a general lack of enthusiasm for cooperation in Russia, which is made greater by the lack of common interests between the two.
   
• Common Neighborhood?: In Russia, there is no such thing as a “common neighborhood,” simply because the region is not perceived as something to be shared, Pełczyńska-Nałęcz said. The term is a strictly European phenomenon, reflecting EU openness for cooperation.

Hidden Conflicts

• Different Approaches: The EU knows what it wants to see in Eastern Europe and the Caucasus, observed Carnegie’s Olga Shumylo-Tapiola, but not necessarily what it wants to do there. Meanwhile, she said, Russia is becoming increasingly pragmatic in its relationship with the region, shaping stable relationships through soft integration projects, such as the Russian customs union.
   
• Tensions: The tensions caused by the competition between the EU and Russia in the neighborhood are individually exploited by the regional parties, Shumylo-Tapiola explained. Russia is largely focused on short-term financial opportunities, while Eastern neighborhood elites, who are afraid of being absorbed into Russia, would rather promote an EU future for their countries in the long run.
   
• EU Soft Power: The panelists argued that EU soft power is irrelevant to Eastern neighborhood countries, as the EU is far too advanced as a social and political model and poorer countries in the Eastern neighborhood are more interested in tangible economic assistance. Furthermore, Shumylo-Tapiola added, the EU cannot begin to utilize soft power as long as it keeps its borders closed.  She also warned against underestimating Russian soft power on issues such as shared language and history.
   
• Defined Interests: Shumylo-Tapiola advised the EU to clearly define its interests in the region, the means it is willing to invest to secure them, and to clarify the prospects it has to offer to the neighborhood countries.

Introduction

Georgette Lalis, Director General at the European Commission’s Directorate-General for Energy, introduced the panel by stressing the need for the European Union to maintain and strengthen relations with the Russian Federation. The EU’s dialogue with Russia on energy issues has expanded over the past year, Lalis explained, notably under the guise of an EU-Russia energy roadmap until 2050. The partners will face challenges going forward, but there are also a number of areas where they can work together effectively. A key challenge, and potential area of cooperation for both partners, will be the modernization of their energy systems; improving their efficiency and increasing energy savings. For the EU, this is a must to keep its dependency on external supplies at a normal level. For Russia, this is a key aspect in modernizing its energy sector and its economy.

While for the foreseeable future Russia and the EU will have different energy market structures, it will also be important for both partners to begin approximating rules and standards. A first important step, Lalis stressed, should be the establishment of a solid legal framework for energy and trade relations in the context of the ongoing negotiations on a new EU-Russia partnership agreement based on Russian WTO membership. This would allow the partners to work towards an increasing convergence of their markets and greatly facilitate further cooperation between Russian and EU companies, as well as the further development and rehabilitation of infrastructure connections, she concluded.

Exploring New Energy Strategies

• Underinvestment and Underdevelopment: Carnegie’s Adnan Vatansever explained that the Russian energy sector is suffering from chronic underdevelopment. Russia, he said, has so far been coasting on Soviet legacies of oil, and to a degree, gas exploration, though the efficiency of exploration and development has improved. To increase investment, Russia must implement comprehensive tax reforms and encourage foreign investment. He outlined Russia’s gas industry as the main source of the country’s future fossil-fuels sector growth.
   
• The Energy Partnership: Vatansever noted that the Russia and the EU’s gas trade has been influenced by a number of recent developments that have refocused the energy industry on traditional resources. These factors include:
  • the rapid recovery of gas demand in Europe;
  • the shale-gas revolution in the United States;
  • the crisis in North Africa, which is creating the perception that Russia is a more reliable trading partner than the North African oil and gas exporting countries;
  • the Fukushima nuclear power plant crisis in Japan.
   
• Demand and Diversification: Russian gas is still captive to the European market, as liquefied natural gas (LNG) has a long way to go before it constitutes a major share in Russian exports, while Moscow and Beijing still need to reach an agreement on a gas deal. . Vatansever explained that security of demand constitutes a major concern for Russian energy planners and its gas industry.  They are concerned over future demand in Europe, especially in light of the European Climate Foundation’s Roadmap 2050 report, which provides an analysis of pathways to achieve a low-carbon economy by 2050. This leads to uncertainty about the amount of investment justified in the long run. In the meantime, Russia strives to diversify its oil export routes by building new export capacity in all major directions. Redirecting part of its crude oil exports towards Asia and away from the mature EU market does appear as a justifiable objective. The overall economic rationale, however, remains weak, while strategic considerations appear as the main driver.
   
• Energy Efficiency: Russia is plagued by very low energy efficiency. On the positive side, the legal framework needed to ensure efficiency investments has improved. There is a need for external investor funding, which provides a major opportunity for European partners. If Europe’s ultimate objective is to reduce carbon dioxide emissions, Vatansever advised, investing in Russia promises favorable returns, provided that a favorable business investment environment exists.

Accommodating Divergent Energy Security Concerns

• Geopolitics: James Sherr, senior fellow in the Russia and Eurasia Programme at Chatham House, argued that understanding the Russian energy sector requires viewing it through a geopolitical lens. He stressed that the relationship between Russian domestic politics and the energy sector is key to understanding the sector’s importance, power, decisions, and efficiency, and referred to the energy sector as a mechanism for state cohesion.
   
• The Energy Partnership: Sherr explained there is no such thing as an “energy partnership” between Russia and the EU, but rather an unbalanced, symbiotic relationship. The stability of this relationship depends on the EU’s continued acceptance of harmful business practices in the Russian energy sector that clash with EU values.
   
• Geo-economics: Sherr explored the use of economic instruments to achieve political gains; he cited as an example the Ukrainian and Belorussian relationship with Russia. He also described the use of political instruments to achieve economic gains, giving the example of the EU-Russia relationship.

In his concluding remarks Maciej Popowski, deputy secretary general of the European External Action Service (EEAS) asked the Forum participants a number of questions about the future of the EU-Russia relationship. He raised the issue of combining ongoing positive change with stability in the efforts to reform entire countries. He also addressed the positively evolving relationship between the EEAS’s Catherine Ashton and Russia’s foreign minister, Sergey Lavrov, with both making deeper commitments, especially in the wake of the Arab Spring. Finally, he discussed the question of visa-free travel between the EU and Russia, but warned against political shortcuts in achieving that and other goals.