European Energy Security in View of Russian Economic and Integration Prospects
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Russian policy makers have been aware of these vulnerabilities and launched an ambitious economic modernization programme already in 2007. The programme aimed at the diversification of the economy and at fostering innovation with the help of industrial policy tools and public-private partnership schemes. There were serious doubts that these efforts would lead to the desired results, inter alia due to the high risk of abuse, inefficiency and other institutional bottlenecks prevailing in Russia. Nevertheless, before the outbreak of the global crisis, the medium-term growth outlook was generally positive, although a growth slowdown appeared inevitable already at that time.
After September 2008, the global crisis hit Russia particularly hard; the main transmission channels were collapsing oil prices and sharply tightened credit conditions. The government responded quite early to the crisis with huge economic stimulation packages, supporting banks, large companies and also consumption. In spite of the anti-crisis measures, the GDP contracted by nearly 8% in 2009, largely a consequence of sharply reduced investment. However, recovery started already in late 2009 and may be rather robust - not least thanks to recovering energy prices. Among challenges facing Russia is the country's integration in the world economy, especially regarding accession to the WTO, and relations with the EU and with former allies in Central Europe and the former Soviet Union. Despite large economic asymmetries between Russia and the EU (most evident in foreign trade, investments and economic size) and sometimes conflicting interests (in particular regarding the contest for influence on the post-Soviet space), the paper argues that mutual interdependence requires cooperative approaches that would serve best the interests of Russia, the EU and the countries in between.
Russia is a major producer and exporter of energy, especially regarding natural gas. The EU is the biggest market for Russian energy exports. The current mutual dependency notwithstanding, both the EU and Russia undertake serious efforts at diversifying energy supply sources, building new transit gas pipeline routes and tapping alternative markets. Russia seems to be in a stronger position in the geopolitical game for controlling energy resources in the post-Soviet region, especially in the Caspian Basin and Central Asia: it has a common energy policy and strategy (in contrast to the EU) and possesses better knowledge and contacts to other energy producers in the region. In this way, and by exerting more control over the extraction and transit of energy from the region, Russia may also compensate for the exhaustion of domestic energy resources and can possibly counterbalance the declining indigenous energy production. Moreover, maintaining its energy export potential - which will remain crucial for Russian export revenues in the foreseeable future despite various diversification and modernization efforts - can also be facilitated by the mobilization of the still huge domestic energy efficiency potential. European energy imports from (or via) Russia can thus be maintained and probably even increased.
Keywords: Russia, economic growth, energy, European Union, economic integration
JEL classification: E0, F15, F59, L9, Q4
Countries covered: European Union, CIS, New EU Member States, Russia