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24 March 2017

Russia’s Slow Pivot Away From Europe

The results of 5 years of pivoting away from Europe are not impressive

Over the last five years, Russia has been trying to achieve two strategic goals: A “Pivot to Asia” (away from Europe) and a renewed focus on post-soviet integration with its Eurasian Economic Union (EEU). Both of those aspirations are rooted in the desire to break away from dependence on Europe, while reasserting its influence in what Russia refers to as its “near-abroad.” The “Pivot” was supposed to bring Russia closer to new Asian markets and energy consumers, and the EEU is conceived to counter European influence through creating a “Eurasian alternative” to the EU in the post-soviet space.

Russia becoming a “regional pole,” as some Kremlin strategists hope, or simply a Chinese appendage, as others fear, are both still distant alternatives. Both outcomes could not be accomplished without a considerable rearrangement of economic ties and cooperation: either by increasing regional economic might or by redirecting both export and import flows to a new partner. But as the data suggests, Russia’s “movement” anywhere remains a feature of rhetoric rather than anything concrete.

Russia’s center of power

All of the deliberations about creating a regional “pole” fall to pieces when Russia’s economic weight is compared to other regional poles such as the EU and China. According to the World Bank’s data from 2016, Russia’s economy is 14 times smaller than that of EU and 8 times smaller than China’s. Russia is 84.3% of the Eurasian Union’s GDP, so the addition of Kazakhstan, Belarus, Armenia and Kyrgyzstan isn’t helping much. Moreover, despite all attempts to boost mutual trade, EEU states’ share in Russia’s trade grew only by 0,5% from 2010 to 2016 while the overall trade turnover in dollar equivalent fell from $64.5 in 2010 to $39 in 2016.  The reason of this failure, of course if we assume that anyone was expecting mutual trade to considerably increase is not even the issue of implementation or the lack of political will, but a question of  limits of increasing mutual trade as such. It is the way that post-soviet economies were developing over the course of the last 25 years when trade with neighbors was never a big priority: Armenia did not trade much with Kyrgyzstan, same for Belarus and Kazakhstan; the only thing that unites them is the interest to trade with Russia. While Russia was growing economically, the trade has increased, same way when Russia’s economy declines so does the mutual trade giving more space for EEU partners to prioritize trade with either EU or China unless Russia was compensating with cheap credits and discounts. These simple circumstances along with the fact that Ukraine is not participating in the integration process almost entirely excludes a possibility of building an economically integrated post-soviet space independent of Europe or China. This leaves EEU nations to settle for some technical and customs harmonization without aspiring for anything grander.

So if in the case of building a center of power it is all clear, the “pivot to the East” requires a bit more of clarification.

Slow motion pivot

For the last three years every year we notice a considerable drop in Russia – EU trade: from $418bln in 2013 to $378bln in 2014, $236bln in 2015 to $200bln this past year. It seems that this two-fold drop is a clear sign of the lowering interdependence, but only if we do not consider Russia’s overall trade drop from $844bln in 2013 to $468bln in 2016. Although the drop in Russia – EU trade is happening slightly faster that the overall collapse, EU’s share in Russia’s trade only dropped by 6 points from 49.4% to 42.8%. At the same time China’s share has risen from 10.5% to 14.1%. Hardly a dramatic shift percentage wise.

In a sense, Russia is a hostage of its pipelines that back in 1960s have determined the direction of its most important commodity exports. Despite  political will, the construction of pipelines to China is taking a bit more time than the Kremlin would have wished for. Moreover, despite the heated debate about the need to decrease the dependency on Russian energy, EU’s diversification of supply is progressing slower than it seemed it would be five years ago. This in fact is diluting part of Moscow’s arguments for the “Pivot”. Also what came as a “surprise” to many is that China has not started buying more Russian industrial goods. On the contrary, China is quite shrewd in its trade with Russia buying mostly primary commodities (80% of Russian exports to China in 2015). Further development of this trend would only solidify Russia’s status as China’s “economic appendage” which is quite fine for China, but is a big problem for Russia especially if it ever wants to modernize. We need to be clear about it: Russia’s “Pivot to the East,” if it is a pivot at all, is so far just a pivot to China. The share of Japan and South Korea, two other major partners in Asian-Pacific in Russia’s trade has only grew by 0.2% for South Korea, while declined by 0.5% for Japan in the course of the last 5 years despite all the rhetoric and considerable enough reduction of trade with Europe.

Intertwined with Europe

Despite the war in Ukraine, sanctions and anti-sanctions, the collapse of oil prices and two-fold ruble devaluation, trade with Europe remains to be the most important dimension for Russia. 

It is already quite clear that in the short term or midterm perspective China will not be able to become an alternative to Europe. Still, we can already see what the principles of such an alternative will be – none other than “Russia as a resources appendage of China”. No Eurasian integration can give any valid economic boost to Russia; moreover it should be viewed in economic criteria as such. 

Despite the desires of Russia’s rulers, Russia is “bound to be with Europe” and in order to drastically change that, it would take much more than 5 years. 

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