Over the last decade, relations between Russia and the West have sustained substantial damage, and energy-related disputes have contributed to this state of affairs to a considerable degree. These disputes have caused memories to resurface of an era when energy was used as a foreign policy tool, one that catalysed serious worldwide economic slumps. In past years, Russia has been accused of misusing its prominence as an energy supplier for political leverage, putting pressure on countries that depend upon Russia for their energy supplies.
The widespread perception is that Russia sees energy exports as a legitimate foreign policy tool, and that the strategy of leading Russian energy companies is driven by government directives that may be geopolitically rather than economically motivated. This perception often dominates the debate, especially in the countries of Central, Eastern, and South-Eastern Europe (SEE). Russia’s handling of energy resources is particularly sensitive for states that depend on Russian supplies, infrastructure, or technologies. An added factor is Russia’s strong opposition to the expansion of Western economic, political, and security organizations that came with the dissolution of the Eastern Bloc at the end of the 1980s. Its general policy aim was to preserve the neutrality of post-communist states, so they could serve as a kind of ‘bumper region’ between East and West (as was suggested for Central Europe [CE]), but this did not come to pass; membership in Western organizations was more attractive to the former communist states. The way the ensuing transitional process played out was far from even for all concerned countries, though. The transition path for states in the SEE was far less straightforward than it was for the states of Central Europe (CE). Simultaneously, Russia took a stronger hand in SEE than it did in CE, partly because of geographical proximity and, in some cases, due to political, historical, or cultural ties. The bottom line is that it was generally accepted that Russia might be willing to use its energy resources coercively to steer development within individual countries or in the region at large.
Because of their importance for economies, the spotlight has understandably been on hydrocarbons, but most of the attention has fallen on natural gas, which made headlines in January 2006 and 2009, and was closely interlinked with the crisis in relations between Russia and Ukraine. Chiefly due to market liquidity factors, oil has been overlooked in discussions of political pressure. It is nevertheless an area worth looking at. The comparatively more fragmented, less predictable nature of the sector versus natural gas may be a breeding ground for politically influenced deals and backroom negotiations at a more granular level which, however, may permit a more complex, less transparent network through which to exert pressure.
Although natural resources have always accounted for a significant percentage of Russia’s exports, they came to play an even bigger role after the year 2000. In the preceding decade, oil exports rose significantly. Along with rising oil prices, the exports were responsible for a much-needed influx of capital into the Russian state budget. Natural gas exports also rose sharply, driven by greater demand and those rising oil prices. During this era, oil and gas exports became Russia’s most important export commodity, and they have remained so ever since. From this perspective, it is no wonder the Russian government pays great attention to developments in the energy markets, since they know that any changes which occur there may substantially impact the Russian economy. With the principal energy companies in the hands of the state, the government theoretically has the tools to influence state energy policy and to use these companies to achieve its aims, be they political or economic. At the same time, the companies find themselves in a somewhat untenable position in that any decline in energy sales could have major consequences not only for their own bottom line but also for the producer’s economy. They must therefore tread carefully so as not to aggravate their customers. Failure to do so could lead to accusations that energy is being misused to further state goals, seriously impacting future sales and harming the economy.
In discussing concerns over Russia’s potential misuse of its position as a key energy supplier, it is imperative to note the changes that have taken place in the relationship between Russia and Europe over the past several years. Since Vladimir Putin assumed the presidency, the Russian government has implemented measures to increase government involvement in various elements of the administrative apparatus, including those involved with the energy sector. Over the past 15 years, several steps have been taken to help restore state control over the most important parts of the sector. Within the past decade, several disputes have also arisen in Europe in which Russian energy sources played a vital role. But the cumulative impact of all these events has been to arouse concerns in those states that depend on Russia for their energy supplies.
South-Eastern Europe is an interesting region with a colourful yet often troubled past. A defining characteristic of the region has been its delayed economic transformation, which stems largely from its geographical location and its political and historical development. The region also has a track record of unique relationships with the Soviet Union and later Russia which, in turn, perceives these countries to be unique. As such, the energy sector too has taken an uncommon path. A number of the countries are closely bound to Russia in terms of supply, infrastructure, and technology and are thereby susceptible to pressure. This susceptibility is further highlighted by the pronounced role played by the industrial sector in the countries’ overall economic output. Their economic structure was considerably influenced by the Soviet model and its focus on industrial production and postwar reconstruction. Because of this, the economies of the former communist states in SEE are highly energy intensive and, consequently, supply sensitive. As a result, any politicization of energy supplies naturally raises concerns. Importantly, such politicization has already taken place a number of times. Many states within the region have experienced the coupling of energy-related issues to politics, and Russia has been accused on several occasions of using energy supplies as a foreign policy tool.
In this book, the authors address the question of whether Russia really misuses oil supplies for its policy goals and what conditions surround such use. To address the research aim, the following research question was formulated: ‘Do Russian state-owned energy companies in the oil sector behave like tools of the Russian state in South-Eastern European countries, and do they serve as vehicles of Russian foreign policy?’ The research is based in the realist paradigm in international relations which gave birth to the so-called strategic approach to energy policy, emphasizing geopolitical logic and the importance of energy resources for state power and their use as foreign policy tools. For purposes of this research, the authors developed an ideal type model of state-guided, strategically oriented behaviour that is characterized by a set of features and indicators. These directly target the main characteristics displayed in attempts to politicize energy supplies, precisely what Russia has been accused of doing in various cases. A search was then made for these indicators in individual cases/states to assess the extent to which Russian state-owned oil companies and their home state engage in behaviour perceived to be problematic.
The focus of the book is on the South-Eastern European region, comprising 11 states: Romania, Bulgaria, Greece, Albania, Macedonia, Kosovo, Serbia, Montenegro, Bosnia and Herzegovina, Croatia, and Slovenia. The majority of these states share a similar historical experience of authoritarian regimes, more or less bound to the former Soviet Union, which influenced the internal structure of their economies, including the energy sector. As much as the region might be perceived as a more or less homogeneous group of states experiencing a delayed economic transition (with the exception of Greece, Slovenia, and probably also Croatia), the reality on the more granular level is somewhat different. Some states have entered the EU, some are candidate states. Some still struggle with basic economic reforms, while others have emerged from the transitional period in good shape. This diversity itself provides a great incentive for undertaking research. The region’s importance from a European energy security standpoint, its interesting internal dynamics, and the high level of Russian involvement on one side, combined with the unclear relationship between Russian foreign policy and the conduct of Russian energy companies on the other, are the main motivators for the research and the book respectively.
Russia’s perception of the region is also worth paying attention to, not just because of the currently worsening state of relations between Russia and the West, but also from the perspective of Russia’s long-term stance towards the region. In contrast to the CE region, where Russia abandoned its former positions during the initial stages of the region’s reorientation towards the West, in SEE and to an even greater extent in some of the Balkan states, Russian foreign policy has been somewhat touchier. The peculiar nature of the relationship has been demonstrated on more than one occasion, including Russia’s stance during the Balkan wars and its attitude towards the recognition of Kosovo. Russia’s economic involvement has also been more intensive, and the energy sector is no exception. Accusations of nonstandard deals, coupled with cultural proximity and close ties between some Russian and local politicians, definitely beg for thorough examination.
The book also includes a brief analysis of the situation in the natural gas sector with a similar goal in sight. The main intention is to compare and ...