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25 May 2015

Energy and Politics – not a mésalliance but conjoined twins

Disentanglement of energy and politics as proposed by Russia is not only illusory, but potentially harmful for the EU and its members 

The European Commission’s recent decision to send state-controlled gas conglomerate Gazprom, a “statement of objections” for suspected anti-competitive practices, was met with a thought-provoking response from Russia. The Ministry of Energy called for a mutually acceptable resolution to avoid “politicization” of the dispute, and Gazprom proposed intergovernmental consultations. Despite Russia’s preference for behind-closed-doors diplomatic games with select European Union governments, it has deemed the Commission’s decision to launch an antitrust case against Gazprom following a two-year long investigation, “politically-motivated.” This reaction sheds some light on Russia’s oft repeated solution to energy disputes with the EU in recent years - i.e. “let’s separate energy from politics”.

On the surface the “de-politicization” argument seems quite sensible, in particular for business which usually tries to avoid easy to identify, but hard to measure and manage, non-commercial risks. The underlying assumption is that any political interference into interactions between companies makes economic considerations subservient to political objectives.

It is rather ironic that allegations of excessive politicization of energy cooperation are now coming from Moscow. It is easy to laugh off the allegation with examples of Russia’s “weaponization” of gas policy, but due to its underlying implications, the de-politicization argument deserves more attention.

I argue that disentanglement of energy and politics as proposed by Russia is not only illusory, but potentially harmful for the EU and its members. There are several problems with this seemingly reasonable call for de-politicization.

Political context always matters

Big business usually prefers to turn a blind eye on the international political environment until it bites. Even when a crisis occurs, major companies instinctively defend their positions and argue for keeping commerce sterile from political influence. Particularly in times of serious turbulence, this position quickly becomes detached from reality.

The Russian annexation of Crimea and its proxy war in Donbas have fundamentally reshaped the political and security landscape in Europe. Russia’s blatant breach of established rules of the game has created enormous uncertainty and has given rise to a unified position in the West as evidenced by economic sanctions - something which would have been unthinkable just a few months before the crisis. Russian aggression has generated a powerful political impulse activating a political response from the EU and the US. 

Under these circumstances, rightly described as the most serious clash since the end of the Cold War, it is naive to presume that discussions of multibillion dollar oil and gas transactions and investments can somehow be isolated from the current West-Russia political dispute.

Although efforts to separate energy from politics appear fruitless, it is worth considering Russia’s motivations behind its call to do so, as well as an optimal European response.

Russian dream of de-politicization

While Russia calls for de-politicizing energy, at the same time, it accuses the EU of being the primary source of tensions by over-politicizing energy relations. Russia is not merely projecting its own sins on to its adversary. If adopted, such de-politicization could be instrumental for Russia in its attempts to further politically disarm the EU, especially to hamper the process ofestablishing an effective common energy policy.

EU-Russia energy relations have been in dire straits for quite some time. Sanctions introduced after Russian aggression on Ukraine only added new elements of tension to existing controversies. The naïve European belief in the mystical power of EU-Russia energy interdependence started to evaporate slowly but steadily after disruptions in Russian gas supplies in 2006 and 2009, Russia’s withdrawal from the Energy Charter Treaty application and Russia’s fierce criticism and open opposition to the third energy package. The primary EU responses - the third package aimed at integration of fragmented markets, new regulations on the security of gas supplies, the anti-trust probe against Gazprom and the Energy Union concept or gas ‘stress tests’ - were supposed to address either implicitly, or explicitly, EU resilience to external shocks.

Due to its erratic behaviour, the EU began to see Russia as a source of turbulence. As a result, the European Commission used its internal market powers to speed up integration and to achieve greater political consistency. It still has a long way to go, but a trajectory has been set, which may be indirectly proven by   Russia's negative and emotional reactions to EU consolidation, which was seen as politically-driven & non-market based. This response is not surprising. Russian policy of the last decade has aimed at reaching the exact opposite outcomes – Russia has sought to preserve and deepen internal divisions in the EU through apt distribution of privileges and infiltration of various segments of the market.

Typically, EU officials reject any allegations about political underpinnings, although they need not do so if politics is used to serve public interest first and foremost and not private gains.  

Different shades of politics

The dynamic political environment in which energy cooperation is pursued always matters, especially when transactions are worth billions and cover goods of strategic importance for economic development and security. However, it is the nature of each actor involved that is key - a political decision in an organization of democratic, law-abiding states differs qualitatively from a political decision in an authoritarian regime.

In today’s Russia, laws reflect existing political order and are thought to be subservient to those in power. In the West, when implemented, laws serve as a constraint for those who wrote them. In a nutshell, it is a case of rule by law meets the rule of law. Therefore, Russia’s complaints of EU legal actions as being purely political is simple psychological projection, i.e. attribution of general disregard for the law, characteristic of current Russian elites.

For a long time the EU has been unable to translate growing uncertainty about cooperation with Russia into political action. Companies were particularly happy to benefit from partnerships with Russian counterparts but at the same time, pass non-commercial risks on to governments. Russia’s predictability and reliability as a gas supplier has been additionally undermined by its military action in Ukraine and the subsequent zigzags when it comes to supplies and transit to Europe. It significantly increased political costs of cooperation with Russia for European leaders who, regardless of their lack of enthusiasm, decided to impose some checks on EU members and business eager to get back to business as usual.

In this light, anti-trust investigation against Gazprom is indeed politically-motivated but not due to any hidden anti-Russian agenda, but because the EU is supposed to defend acquis communautaire, developed through years of complex and difficult political negotiations within the EU. Furthermore, those who propose separating energy from politics should be aware that Russia is not at all interested in de-politicization but rather in preserving a model that used to be politically and financially beneficial for rent-seekers and re-distributors and now seems to be crumbling. Under current circumstances, it is of the utmost importance for the EU to develop the capability to act as a political actor. As long as politics aims at delivering public goods for European citizens such as security of supply and a competitive market  instead of ensuring private gains for selected EU and non-EU individuals and companies, there is nothing wrong with tight relation between politics and energy.

Photo  by Bilfinger SE/CC BY-ND 2.0

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