Placing Energy and Geo-economics in Russia’s Foreign Policy

Placing Energy and Geo-economics in Russia’s Foreign Policy


Rahul Rawat

The logic of war is the grammar of commerce” notes eminent strategist Edward Luttwak to convey that it is geo-economics which is driving the geopolitics. His analysis is based on a broader understanding of international politics as to how states especially great powers compete with each other in the economic sphere especially to amass wealth and thus power in this interconnected world characterised by the global supply chains and an ever-present race for exploiting resources and utilising them for one's benefits. The case for gaining advantages through the means of resources (specifically energy here for our purpose) brings in the part of interest, power, and geopolitics to be attained through a suitable strategy. Therefore, the apt term to define and analyse these actions of intermingling and aligning of energy factors by a state to its foreign policy goals and grand strategy framework becomes the concern of geo-economics. This article brings out certain facets of energy geo-economics and makes observations of intermingling factors in Russia’s foreign policy strategy.

The understanding of post-Soviet Russia opens up the gates for a new kind of competition which can be described not in terms of cold war time nuclear parity but in terms of economic and gaining influence over other actors. Russia chose the way of energy diplomacy and made energy resources a new weapon in order to revive its lost glory and image in international politics.

Russia’s larger policy alignment towards energy resources and diplomacy comes from its interests, particularly in Asia. Russia has a long history of constructing bigger projects in the form of hydro dams, energy plants and industries. Rapid industrialisation and technological advancements were evident during the Stalin period. Further, energy was crucial even during the Cold War period as Russia heavily subsidised the supplies to its satellite states under the Warsaw pact. The strategy of diversification of Russia’s energy partnerships in the post-soviet era put pressures on the West. Russia's derivation of world view in the form of a multipolar world aptly describes the insecurities it possesses in a US-dominated world. Russia has revived the oft lost glorious days of Sino-Soviet relations as the mounting pressures from the US on China’s rise and consistent presence of US in East Asia challenged by China opens the prospects for Russia to cooperate in every possible way to gain advantage and utilise this ripening rivalry to boost its projects, investments and market economy smoothly. However, the fact remains, the global market structure is a legacy of the Cold War and in a major sense was restructured by the US. The liberal international order remains a threat to Russia’s path to global energy superpower. The market is favourable and at the same time is risk-prone with the fluctuating crude oil prices giving a room to uncertainty in assessing the future trajectory of Russia. Overall, Russia’s bid to challenge the US remains more rhetoric as it is all the time functioning and managing its interests in a system shaped by the unipolar power, United States and its driven political and economic order.

Russia’s Energy Strategy for the Period up to the Year 2030

After adopting the first energy strategy in Putin's first tenure, Russia replaced the one with a second official document to retain some elements from the previous policy document, showing continuity in some spheres and at the same time incorporating numerous changes as per the geopolitical and geo-economic demands of the times. This has necessitated changes in the larger foreign policy agenda. The main reason for the change has been attributed to the economic crisis of 2008. The crisis affected the wholesome production, exploration and investments domestically as well as abroad. Aiming at recovering the losses and stagnation incurred during the crisis and as part of the post-crisis efforts, the Russian government adopted the new energy strategy document. The document clearly states that the objective is to maximize the effective use of natural energy resources and the potential of the energy sector to sustain economic growth, improve the quality of life of the population and promote the strengthening of foreign economic positions of the country.

The document maps out the improvement of extraction and processing of energy resources, modernization of energy infrastructure through upgradation of technologies, a stable institutional environment, and further integration of the energy sector into the world energy demand-supply network. The document states that in the first phase, the consequences of the 2008 crisis will be overcome, the state like one of lower production will be dealt with. In the second phase, from 2015-22 the fuel-based sector will be made more efficient and innovative to expand it to the Far East. Finally, the phase of 2022-30 will be a turn towards switching to alternate sources of energy and thereby reducing the dependence on the export of hydrocarbons by almost half.

One of the subtitles of the document: "foreign energy policy" road map for 2030, defines the objective in terms of maximization of energy exports at higher prices to derive larger benefits for the national economy. In order to realize this ambitious goal, Russia will have to diversify its energy relationships and at the same time deepen it with the traditional partners. Some key measures would include - active participation in matters related to the energy issues at the international level, maintaining a fine balance between the demand, supply and transit providing parties; attract customers from CIS, European Economic Union, European Union and Shanghai Cooperation Organization and other major economic and political organizations and their member states; active participation of Russia in international cooperation on development of the energy of the future like deriving energy from sources like tides, thermonuclear processes and hydrogen atoms. This pathway to the accomplishment of goals will be ensured by the construction of pipelines and transportation corridors across both eastern and western geographical spheres of Russia.

Minin and Vlcek suggest that the Russian state is employing its energy resources and power-fuel-energy complex as instruments for channelizing its foreign policy goals and that the status in global markets is determined by the geopolitical influence of the country. Even the Russian national security establishment views civilian nuclear exports as a "key tool for projecting influence overseas."

With the rise in energy prices in the last decade, the leadership in Moscow opt for energy diplomacy to enable its more form position and influence among the CIS member states and for entering into a new type of relationship with the European Union.

Nuclear energy and technologies remain under the strict control of states and that brings in the element of geopolitics to it. Nuclear commerce in itself is a form of geopolitics where the special and strategic ties are established with a degree of credibility of the demand-side player and a reassurance that the atom will not be used for mischievous purposes. The second step goes with the approval of a nuclear relationship between the supplier and the beneficiary. The overall process includes the export of nuclear plant design, reactor technology, and most importantly the relations between the dealing countries. Here it is much more than the simple energy dimension thus intricates the state's energy policy and foreign policy. As a recent CSIS Report brings out, the core of Russia's motivation for nuclear energy exports remains its ambitions to exert influence and relevance.

Russia's nuclear energy project at Akkuyu in Turkey is one of the most significant projects, as it has led to a strain effect in US-Turkey bilateral and wider regional partnerships. The issue favours Russia as Turkey is a member country of the US-led NATO and the US has seen its nuclear energy program with suspicious eyes, as it can lead to nuclear proliferation. Rosatom became the only bidder for developing Turkey's civilian nuclear energy program in 2008. Besides, Russia has come up with a build-own-cooperate (BOO) model in an agreement in 2010. This allows Russia to not just build but also to manage and conduct the plant operations. The embracement of Russian energy projects by Turkey strengthens the position of Russia and at the same becomes a matter of worry for the United States. Overall, nuclear commerce adds wealth to the Russian GDP as in 2018, Rosatom paid RUB 188.2 billion ($2.83 billion) in taxes, "including RUB 71.4 billion ($1.07 billion) to the budgets of the federal subjects of Russia and local budgets."

Nuclear fuel plays a crucial role as "oil and gas are primarily short-term shocks" and can be dealt with apt strategies like excess shortage and supplier diversification, "nuclear power risks entail long-term dependencies which cannot beeasily addressed." For Russia, this long-term dependency of demand-side states brings in the linkage of nuclear commerce and energy with the foreign policy of the state. Nuclear commerce, thus, acts as a part of a larger strategy of energy diplomacy of Russia to diversify its overall export profile, which otherwise is heavily influenced and driven by oil and gas.

Russia’s other energy (re)sources include the following -

(1) Coal - Russia is the world’s third largest exporter of coal and remains the sixth largest coal producer in the world. In 2016, 45% of total coal production was domestically consumed. This highlights the less consumption trend in Russia and dependency on exports for earning wealth. The rate of exports has increased especially since the 1990s period and the demand has risen from Asian countries as their heavy dependence on coal for industrial purposes (accounting for 47% of Russia’s net exports).

(2) Electricity - Russia is among the leading states in terms of production and consumption of electric power with around 220 GW of installed energy capacity. Generally, Russia uses fossil fuels like oil, gas and coal to generate electricity which comes as a weak point for its overall dependence on energy resources. As fossil fuels are essential for vehicles and transportation purposes and their dual use - as a source of energy and as fuel to generate electricity puts a good amount of pressure on the non-renewable reserve of the country.

(3) Pipelines - About 107,000 miles of transmission pipelines and more than 20 underground natural gas storage facilities. Gazprom the sole owner of pipeline projects has extended its reach to Eastern Siberia and exports include China as well. The Unified Gas Supply (UGS) system, an interconnected network of natural gas pipelines including the domestic pipelines and those connecting exporting lines in European Russia.

(4) Natural Gas - Russia holds the largest natural gas reserves in the world which are dominated by the state-run Gazaprom. The Ministry of Economic Development supervises the tariffs while the Finance Ministry looks after the hydrocarbon extraction and the Ministry of Energy develops and implements general energy policy and oversees LNG exports.

Although several studies have focused on Russia’s energy superpower status, what remains a matter of question is how Russia executes its ambitious goals. Inherent geopolitics and geo-economics in the process of using oil and other energy resources as Russia pursues its higher objectives point out two important observations. First, Russia is pursuing a path of realism and pragmatism equally influenced by Marxism-Leninism, leading to more integration with the West but at the same time distinguishing itself from the West. Second, Russia’s bid for becoming an energy superpower is conceived closer to reality in a world characterised as a multipolar world order. This puts in the US-Russia relations in a competitive zone as it puts the image of the US in low light. Besides, most important is the part that Russia has been advancing with a good pace towards its planned policies, using energy as influence and as a means to attain its lost glory, building military capabilities and challenging the dominance of the West. However, what remains crucial is its inability to challenge the US directly and this obstructs its path to gain superiority in energy sector thereby using it as leverage to build its status and power.

The author is a Masters student at the School of International Studies, Jawaharlal Nehru University, New Delhi.