Studies Eastern European Markets
Eastern European Markets


Kari Liuhto
Energy in Russia's foreign policy

Electronic Publications of Pan-European Institute 10/2010

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Introduction: Have gas pipes become a more powerful foreign policy tool for Russia than its army?

Every nation uses its political connections, economic relations (e.g. foreign trade and FDI), military capability and other available means in the most effective way to strengthen the nation’s position in the international arena. Russia is no exception.

What makes Russia exceptional is the loss of its super power status due to the break-up of the USSR in 1991. Bugajski (2004, 1) argues that “Russia experienced the most profound economic, political, and military collapse by an empire not defeated in war”.

The collapse of the Soviet Union almost led to the disintegration of the Russian Federation and to a deep economic fall. As a consequence of the prolonged crisis roughly one half of Russia’s GDP evaporated during the period 1990-1996. The post-Soviet economic fall came to an end in 1997 but already a year later Russia also experienced the consequences of the Asian crisis. Since 1999, Russia’s recovery has, to a great extent, been based on the booming oil prices.

In the past decade, Russia managed in almost doubling its real GDP, though the country experienced a GDP drop of 8% in 2009. The drop will be temporal. It is officially estimated that the Russian economy will grow by 3-6% this year (BOF 2009; 2010).

The growth has inspired the Russian leadership to aim at regaining the superpower status it lost two decades earlier. Even if Russia’s foreign exchange reserves (currently over USD 450 bn) are the third largest in the world after China and Japan (IMF 2010), it should be remembered that Russia is still a relatively small actor in the international economy.

Russia represents some 2% of the planet’s population and 2-3% of the world GDP (CIA 2010). The country’s share in the global exports and the world’s outward foreign direct investment stock is 3% and 1%, respectively (UNCTAD 2009; WTO 2010). It is worth noticing that should the oil and natural gas sales be excluded from the Russian exports, the value of its exports would be smaller than that of the Czech Republic (CIA 2010).

Russia’s share in the globe’s military expenditure is slightly larger than its share in the world economy, i.e. Russia spends 4% of the globe’s military expenditure. Just to give a reader a comparison point, the military expenditure of the USA is some 10 times larger than that of Russia3. In 2008, Russia’s military expenditure was USD 40-60 billion, whereas two decades earlier the spending was 3-5 times bigger, accounting for more than 10% of the country’s GDP (SIPRI 2010).

Russia’s current military spending naturally does not indicate the country’s real military might. One should not forget that Russia still possesses a devastating number of Sovietera tanks, military airplanes, warships and submarines, nuclear warheads, and chemical weapons. On the other hand, a large part of the Soviet era weaponry becomes obsolete by the end of the next decade, as the Soviet armaments are already at least 20 years old.

Since the country's military might and its economy (state budget) financing the army do not allow Russia to act as a global superpower, it has chosen another strategy, i.e. Russia is using energy to strengthen its position in the international arena (Rozman 2007). During the past decade, Russia became the largest energy exporter in the world. The change in strategy is an understandable move, since the energy weapon can be used in a daily foreign policy unlike the military force.

The goal of this report is to analyse 1) the capability of Russia to use its energy to reach its foreign policy objectives, 2) the energy import dependence of Russia's main clientele, 3) ways how Russia has previously used energy as a foreign policy instrument, and 4) the strategic goals of Russia’s foreign energy policy.

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