The Russian Challenge
20150605RussianChallengeGilesHansonLyneNixeySherrWoodUpdate
20150605RussianChallengeGilesHansonLyneNixeySherrWoodUpdate
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<strong>The</strong> <strong>Russian</strong> <strong>Challenge</strong><br />
Russia’s Toolkit<br />
<strong>The</strong> enormous investment undertaken by Russia in<br />
commercially unjustifiable projects such as the Nordstream<br />
pipeline underscores the importance to Russia of energy<br />
as a tool of influence in the last decade. More recent<br />
developments in international energy markets, and moves<br />
to reduce European dependence, may dilute the power of<br />
Russia’s energy lever in the long term. 205 This requires the<br />
kind of sustained investment and political will that has been<br />
seen in the Baltic states, where 100 per cent dependence<br />
on Gazprom for gas supplies and prices created a sustained<br />
vulnerability. Pipeline gas contracts provide Russia with<br />
greater leverage than do oil supplies in the more flexible<br />
oil market. In October 2014, Lithuania opened a liquefied<br />
natural gas (LNG) terminal to reduce its exposure to<br />
<strong>Russian</strong> energy pressure. 206<br />
Economy and trade<br />
Price and trade dependency provide further means by<br />
which Russia can persuade or punish its neighbours.<br />
Boycotts and embargoes on their key exports have<br />
repeatedly been employed to inflict economic damage, often<br />
using entirely spurious health or environmental concerns as<br />
a pretext for banning imports of foodstuffs to Russia.<br />
Georgian wine and mineral water, and Baltic and Belarusian<br />
dairy products have been repeated targets for bans. But<br />
almost 25 years after the end of the Soviet Union, wellestablished<br />
trading relations beyond the Soviet republics<br />
have created a range of new vulnerabilities. Despite optimism<br />
at the time, Russia joining the World Trade Organization in<br />
2012 did little to constrain its misuse of health regulations; 207<br />
instead, Russia openly admits within WTO meetings that<br />
some bans on food imports are politically motivated. 208<br />
Russia’s August 2014 ban on imports of foodstuffs from a<br />
range of countries was widely viewed as a perverse move<br />
that would further punish <strong>Russian</strong>s themselves to no<br />
positive effect. But the implications for central European<br />
states that had come to rely on the <strong>Russian</strong> market were<br />
severe. Surplus Polish apples became a symbol of standing<br />
up to Russia, while in the Nordic states, ‘Putin cheese’<br />
(labelled for export to Russia) flooded supermarkets at<br />
dumping prices as producers tried urgently to shift banned<br />
dairy products to alternative markets. <strong>The</strong> overall effect<br />
was to remind those countries that had come to take welldeveloped<br />
trade links with Russia for granted that, as put by<br />
Lithuanian President Dalia Grybauskaitė, Russia is ‘a totally<br />
untrustworthy and unpredictable business partner’. 209<br />
Other economic instruments routinely feature in <strong>Russian</strong><br />
pressure on its neighbours. Russia seeks to establish or<br />
reassert dependencies by the creation and usage of debts,<br />
and a related creeping control of key infrastructure. <strong>The</strong><br />
exact amount and type of <strong>Russian</strong> investment can be<br />
difficult to assess because of the routine use by <strong>Russian</strong><br />
businesses of third countries and other jurisdictions to<br />
channel investments, concealing their origin from normal<br />
economic analysis. 210 As with energy disputes, much of the<br />
scale, composition and timing of <strong>Russian</strong> foreign direct<br />
investment used as leverage can also be accounted for by<br />
normal commercial drivers. But the net effect in terms of<br />
a lever that Russia can exploit is similar. 211<br />
Purchasing influence<br />
Russia’s ability to purchase or co-opt business and<br />
political elites into loyal, or at least compliant, networks<br />
is a primary tool for garnering influence. Both bribes<br />
and business opportunities are used to recruit agents<br />
of influence throughout target countries. This leads to<br />
direct impacts on political processes through Trojan horse<br />
individuals or organizations. 212 A 2008 study warned that<br />
the UK ‘should be wary of placing reliance on EU or NATO<br />
solidarity, or on national leaders or key figures to act in<br />
what would appear to be their own national interests’, and<br />
suggested, ‘it is urgent that we now look more closely at<br />
this activity at home’. 213<br />
205<br />
‘Conscious uncoupling: reducing Europe’s dependence on <strong>Russian</strong> gas is possible – but it will take time, money and sustained political will’, <strong>The</strong> Economist,<br />
5 April 2014.<br />
206<br />
‘Baltic leaders welcome Lithuania’s “Independence” as energy security guarantee for all region’, Baltic News Service (BNS), 27 October 2014, http://en.delfi.lt/<br />
lithuania/energy/baltic-leaders-welcome-lithuanias-independence-as-energy-security-guarantee-for-all-region.d?id=66232218.<br />
207<br />
‘How Russia’s Membership in the World Trade Organization Improves Sanitary and Phytosanitary Measures and How <strong>The</strong>y Are Applied in the <strong>Russian</strong> Federation’,<br />
Office of the US Trade Representative, undated document, https://www.ustr.gov/sites/default/files/How%20Russia%20WTO%20Membership%20Improves%20<br />
SPS%20Measures%20and%20How%20<strong>The</strong>y%20are%20Applied%20in%20Russia.pdf.<br />
208<br />
World Trade Organization, ‘Russia contributes to sanitary-phytosanitary committee, but also attracts concerns’, 17 October 2014, http://www.wto.org/english/<br />
news_e/news14_e/sps_15oct14_e.htm.<br />
209<br />
‘Eat apples to annoy Putin’, Eastern Approaches blog, <strong>The</strong> Economist, 29 August 2014, http://www.economist.com/blogs/easternapproaches/2014/08/polandand-russia.<br />
210<br />
Agnia Grigas, Legacies, Coercion and Soft Power: <strong>Russian</strong> Influence in the Baltic States, Chatham House Briefing Paper, August 2012.<br />
211<br />
Philip Hanson, ‘Russia’s Inward and Outward Foreign Direct Investment: Insights into the Economy’, Eurasian Geography and Economics, Vol. 51, No. 5, 2010, pp.<br />
632–53. See also forthcoming article by Philip Hanson and Stephen Fortescue, ‘What Drives <strong>Russian</strong> Outward Foreign Direct Investment? Some Observations on the<br />
Steel Industry’, Post-Communist Economies, Vol. 27, No. 3, September 2015.<br />
212<br />
A topic explored in detail in Janusz Bugajski, ‘Georgian Lessons: Conflicting <strong>Russian</strong> and Western Interests in the Wider Europe’, CSIS, 2010, http://csis.org/files/<br />
publication/102110_Bugajski_GeorgianLessons.WEB.pdf.<br />
213<br />
Defence Academy of the United Kingdom, ‘Russia – Future Directions’.<br />
44 | Chatham House