The Russian-Ukrainian Trade Spat

In mid-August, Russia blocked virtually all imports from Ukraine. Although the cross-border flows between the two countries have since resumed following a week of heightened tension, the issue is far from over. On the contrary, the trade spat was probably just the first warning shot in what could escalate into a full blown trade war, the ultimate aim of which would be to prevent Ukraine from signing an Association Agreement with the EU at the Eastern Partnership summit in Vilnius in late November, thereby preventing further economic integration with the European Union and steering it in a Eurasian direction instead.

It is in Ukraine’s political interest to sign the Association Agreement, containing a free trade component, with the EU, while maintaining the existing free trade agreements it has with other post-soviet states, including Russia. Although a country can have multiple free trade agreements and such an arrangement would be a win-win situation for Ukraine, Russia is adopting a more zero-sum stance towards the matter. This is primarily due to the fact that, once Ukraine signs the Association Agreement with the EU, it will no longer the able to join the Russia-led Customs Union – or the proposed  Eurasian Economic Union – due to the differing standards and tariffs in place. An EU-Ukraine free trade deal will mean greater access for Ukraine to the EU market through lower customs and non-tariff barriers, higher export quotas for certain sensitive goods, and the adoption of EU standards in a wide range of domains.

Until recently, Russia was relatively at ease, feeling secure in its belief that the EU would not sign the already finalised and initialled Association Agreement with Ukraine as long as former Prime Minister Yulia Tymoshenko remained in jail, and that President Yanukovich was unlikely to release his main political rival a year and a half before the next presidential elections, due in early 2015. However, in the last few months there has been some progress made, with the European Commission putting forward a proposal for a Council decision on the signing of the Agreement, and the EU and its member states working more actively to seal the deal with Ukraine in Vilnius. Read the rest of this entry »


Ukraine’s gas loop

For many years, most countries in central and eastern Europe – from Bulgaria to Latvia, from Ukraine to Hungary – have complained of their dependence on Russian gas. All have tried to reduce this dependence through a combination of the development of new infrastructure (interconnectors, compressor stations for reverse gas flow), frantic searches for alternative gas suppliers (Nabucco, Norway), anti-trust procedures against Gazprom (as launched by the European Commission), and regulatory changes affecting the sale of gas in Europe (the ‘third package’).

An interesting sideshow of this struggle is now occurring in Ukraine. While most analysts assumed that a decreased dependence on Russia would come from access to non-Russian resources – in the form of shale gas, liquefied natural gas (LNG) or Norwegian gas – Ukraine and the German energy giant RWE seem to have found a way to limit Gazprom’s sway over Kiev, while continuing to consume Russian gas. Read the rest of this entry »

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Why Saakashvili Lost?

Mikhail Saakashvili, Georgia’s president conceded the defeat of his party at the parliamentary elections. His rival Bidzina Ivanishvili, a money-splashing oligarch who made his billions in Russia and and set up the Georgian Dream party – a motley crew of oppositionists ranging from very respectable centrist politicians or former diplomats to some loony nationalists and populists – got over 50% of the votes on party lists. Saakashvili might still get a majority in the Parliament because whereas he seems to have lost the contest for the Parliament’s half seats that are elected on party lists under proportional voting system, the other half is elected as single-seat constituencies where Saakashvili’s part might have the lead.

Anyway, the election results are a big surprise. Just a couple of months ago very senior Georgian politicians were expecting something like a 50% to 30% victory for Saakahsvili, and were saying that the main danger from Ivanishvili was not for this round of elections, but for the next electoral cycle where he could build on his 30% to make the leap towards a proper majority.

Of liberalism and social democracy

The reasons for the elections results are manifold. The most important is basically too right wing a government. In his near-decade in power Saakashvili achieved huge successes in state building. The list of achievements is very long and has been so often quoted by Georgia apologists and friendly lobbyists that many people are tired of it. However, what Saakashvili achieved is no mean feat. He drastically reduced low-level corruption when it comes to the interaction between the citizen and the state – from traffic police to construction-permit issuers. He attracted significant investments, and most importantly (re)built the skeleton of a more or less functioning state, starting with the police and tax-inspectorate, then moving on to courts, universities, and municipal services (Here is a good book from the World Bank chronicling Georgia’s reforms). All was supplemented with a huge deregulation drive – that ranged from cutting red-tape and giving as free a hand to investors to drastic liberalisation of visa procedures for as many countries as possible. Georgia was open to anyone who would come to spend money or invest – from Iranian or Turks going to casinos in Batumi, to Russian, Kazakh or Gulf investors. Read the rest of this entry »


Time for Azerbaijan to open up

Foreigners normally tiptoe around Azerbaijan. They all want something from the country, be it in the field of energy or security. The EU wants Azerbaijani oil, gas and cooperation over building gas pipelines to Central Asia. The US and Israel value cooperation over Iran. Turkey has a strategic partnership with the country. Russia wants Azerbaijan not too align too closely with the US and to prolong the lease for the Russian radar station in Gabala. In its turn Azerbaijan is rarely a foreign policy demandeur. It has lots of oil money and a consolidated authoritarian regime which does not want to take lessons over foreign policy or lack of democracy at home.

Appearances can be deceptive

Money and a careful foreign policy between various great power interests made Azerbaijan the ultimate balancer and a fairly arrogant regional player. But the Azerbaijani system is more fragile than the country’s foreign partners think. The foundations of that system are increasingly shaky for several reasons.

One key factor is decreasing oil production. Oil production peaked in 2010; it will go down by half by 2017 and two-thirds by 2019. The hope is that new gas reserves will make up for the difference in incomes. This might compensate the fall in revenues, but only partly and insufficiently. Read the rest of this entry »

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Updating Russia’s repressive software

The massive street protests, which started in December 2011, have proved a very considerable stress-test for Russia’s autocratic political system, built and steered by Putin for over a decade. Russia-watchers in Europe and the US debated how the Kremlin would respond. A few months ago the usual cohort of useful wishful thinkers argued that Putin, swayed by the rising middle classes, would accelerate Russia’s modernisation. In a sense they were right. Putin is modernising, but his efforts are directed at the repressive apparatus of laws and, possibly, institutions, rather than at the economy or the political system.

Tightening the screws

During 2005 and 2006 Russia adopted swaths of legislation designed to prevent events like the 2004 Orange revolution in Ukraine or the 2003 Rose revolution in Georgia. Electoral laws were toughened in ways that strengthened the pro-Kremlin ‘United Russia’ and weakened potential alternatives; thuggish pro-Kremlin youth groups such as Nashi (‘Ours’) were established; new restrictions were introduced, seriously complicating NGO activities and election monitoring; and vaguely defined legislative provisions against ‘extremism’ that could then be used against opposition activists were adopted.

Under Medvedev’s presidency the bulldozer of state repression was used with less enthusiasm. Sometimes it actually receded. Earlier this year it even seemed that the authorities might actually embark on liberalising the political system in response to the street protests. Instead, the protests seemed to have sparked a new round of attempts to tighten the screws and refurbish the repressive apparatus.

It started with the legislative software. Read the rest of this entry »

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Putinism under Siege: on the nationalist-democratic alliance

Journal of Democracy has just published a special issue on ‘Putinism under Siege‘ with contributions from Lilia Shevtsova, Ivan Krastev & Stephen Holmes, Denis Volkov, Sharon Wolchik and I. My piece is on The Strange Alliance of Democrats and Nationalists .

The article looks at three broad themes:

1) How Russian nationalism is evolving from an expansionist, Eurasian, and imperial version into something that is primarily anti-immigrant, defensive and sometimes non-expansionist.

2) How nationalists started to adopt some pro-democracy rhetoric in the belief that a more democratic system based on majority-rule would make state policies closer to their policy prescriptions.

3) How some Russian democrats sometimes entered into ad hoc alliances with nationalist groups on an anti-Putinist platform, but also how a much deeper fusion of democratic and nationalist views starts to be espoused by various political players. This phenomenon is still in its early stages, but could be a sign of things to come. Read the rest of this entry »

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Russia’s lightweight government

The last few months saw speculation of two possible behavioural models for Putin. The usual wishful thinkers were hoping for a Putin 2.0 (or maybe 3.0 or even 4.0) who was supposed to have got the message of the street protests and was supposed to engage in (swiping) reforms to modernise Russia and gradually and slowly liberalize the political system to let some steam off. The alternative camp of usual alarmists were saying that Putin will return with even stronger determination to tighten the screws and things will be much worse in terms of repression before they get better. And both camps waited for the new government to get a sense of what will come next. With the government announced here are a few things to note:

1. On the surface three fourths of the government were changed, but the changes were rather (and unsurprisingly) conservative. The composition of the new government suggest neither a strong reformist push, nor a centralising backlash, but rather more of the same. Especially given that several key former ministers just joined Putin in the Presidential Administration as his advisors, but are likely to exercise more influence over specific policies than many of the new ministers.

2. Overall the government looks unexpectedly ‘Medvedievist’ – in the sense of having a good presence of soit-disant ‘liberals’. Read the rest of this entry »

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Russia in Reverse

Project Syndicate, 7 May 2012: Vladimir Putin has just been inaugurated for a third term as President of the Russian Federation. But the event’s pageantry could not mask that his return to the presidency, after a four-year stint as Prime Minister, is far from triumphant. On the contrary, Putin, who has been in power since 2000, represents the specter of stagnation that haunts Russia – a specter that wants at least another two six-year terms as President.

The contrast between the transition at the Kremlin and China’s upcoming – and strictly choreographed – power transfer could hardly be starker. This autumn, all nine members of the Politburo Standing Committee, including the country’s president, Hu Jintao, and premier, Wen Jiabao, will step down, and at least 14 members of the 24-member Politburo will retire, making way for a new generation of leaders.

So, although China has the more authoritarian system, it is moving forward. The same cannot be said for Putin’s Russia.

Unlike China, a one-party state, where real power is insulated from direct voting by layers of Communist Party structures, Russia has a multi-party political system, with regular elections at most levels of government. To be sure, not all parties or candidates are allowed to run, and elections can be manipulated. Still, there is more room in Russia than in China for opposition voices to express themselves.

Indeed, Russian civil society and protest movements are more assertive and politicized, while protests in China are crushed without remorse. The Russian media, particularly newspapers and radio, have more freedom as well, and openly disparage Putin, whereas Chinese journalists can take on issues like corruption, but may not criticize the Party. Likewise, the Internet is not censored in Russia as it is in China.

Given that China is significantly more authoritarian than Russia, it seems counter-intuitive that China’s political system manages to produce some rotation of leaders, however imperfect and even tense, whereas Russia does not. In this way, China takes advantage of one of democracy’s key benefits – leadership turnover – without the risk of popular accountability.

Read the continuation of this commentary on Project Syndicate

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EU-Ukraine: from fatigue to irritation

Ukraine’s favourite foreign policy game is called ‘multi-vectorness’ – a constant process of ‘eschewing choice’ as this recent study explained. For years Ukraine sought to extract concessions and be treated nicely by both Russia and the EU or US not because it was sticking to its promises, but because it played sometimes skilfully and sometimes brazenly on contradictions between external actors. A simplified version of the rule of rules of the game, in its Ukrainian version, looks the following way:

  1. Promise both Russia and the EU everything they might want to hear (usually integration into some Russian- or EU-led initiative);
  2. Ask for something in exchange (market access, lower gas prices, financial assistance, opportunities for lucrative but opaque deals  etc).
  3. Get what you asked and drag your feet on delivering on your promises.
  4. If either the EU or Russia is upset for not getting what they were promised – threaten that you will intensify cooperation with the other external partner.

The truth is that this has mostly worked. (Not just for Ukraine, but also for Moldova under Voronin and at times Belarus’ Lukashenko or a whole series of Central Asian states, not to mention a plethora of historical case from Italian city-states in the Middle Ages, to Nasser’s Egypt and Tito’s Yugoslavia.)  Read the rest of this entry »

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Will Yanukovich become a Putin?

On a recent trip to Ukraine for the Kiev Security Forum I asked some of the Ukrainian analysts whether Yanukovich will manage to become like Putin - a successful authoritarian leader able to retain firm political control for a long time. There is little doubt that Yanukovich would like to be like Putin and is trying to build a more or less similar system. But there are a number of differences. First, is that Ukraine does not have energy resources and Yanukovich therefore lacks the money to co-opt the elites and the public as widely as Putin could do.

But another important factor is how Putin and Yanukovich play their systems. Putin’s role in the Russian system is that of the ultimate arbiter between various elite groups. He is a moderator, not a player in the elite squabbles. He is not neutral, nor fair. During his presidency, his closest friends acquired vast assets, and there has been quite some redistribution of property. But Putin mainly tries to stay above the fray realising that this is an important power resource for him. This is how he makes himself indispensable to the multiple interests groups within the Russian elites. That is also why elites value him – he has the power and the skill to maintain some degree of balance between competing factions.

Read the rest of this entry »

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