Russian Energy Relations
From a Neorealist and Neoliberal Institutionalist Perspective
Master Thesis Tessa Krijgsman S1460331
16 September 2010 Docent: Dr. N. de Deugd
Contents
Introduction 4
Neo-realism, Neo-liberal Institutionalism 10
and the Energy Dimension in Foreign Policy The Special Relationship 29
Post-Soviet Relations 56
Strategical Partnership 83
Conclusion 108
Literature 113
Introduction
Since the presidency of Vladimir Putin, Russia has been following a roadmap of reinvention and renewed international recognition. With its increasing importance as an energy supplier on the international market, Russia has regained a powerful position in the international arena.
The market for energy has become very tight, due to low investment levels and a growing demand.1 The oil and gas market has been fundamental to Russia’s rapid economic recovery and newfound wealth. Russia’s main consumer market is the European Union and Russia has been a very reliable trading partner to the Western European states since Soviet times.
Russia has also been seeking other market options for the aspired diversification of their oil and gas supplies to countries like China and Japan. After the collapse of the Soviet Union, Russia and the former Soviet Republics have also had to face the new realities of a capitalist market system. Russia has been trying to stop subsidizing energy consumption in the form of low energy prices by introducing and implementing a system of market-related energy prices.
The reputation of Russia as a reliable energy supplier has been jeopardised with the occurrence of gas cut offs to Ukraine in 2006 and 2009, which also affected several member states of the European Union. The disruption of energy supplies has sparked research on the security of energy supplies in the European Union. Next to the disruption of energy supplies, the Russian government has been re-establishing its control over country’s energy resources, frequently referred to as resource nationalism. Various trade and business agreements with Western and Chinese enterprises were cancelled. Although the actions of Russia might be justified considering the swift move from a communist to a capitalist orientated market system, enriching a small elite, it has seriously affected Russia’s reputation as a fair trade partner.
The new energy policy introduced by Vladimir Putin and continued by his predecessor Medvedev are likely to be pursued for the coming years, as is also argued by Susan Handke and Jacques de Jong, researchers at the Clingendael International Energy Programme.2
1 Linde, Coby van der, Perlot, Wilbur and Femke Hoogeveen. Tomorrow’s Mores. The future geopolitical system and the structure of the international oil market CIEP (The Hague, n.d.) 1.
2 Handke, Susann and Jacques J. de Jong. Energy as a Bond: Relations with Russia in the European and Dutch Context CIEP (the Hague 2007) 1-4.
Basically, the Russian government has now regained a controlling and decisive position in the energy sector. The Russian government has also been supportive of establishing large, vertically integrated energy companies, able to compete on the international energy markets.
Russia has regained its voice in the international affairs, participating in International Organizations and agreements such as the Energy Charter Treaty and the Shanghai Cooperation Organization. Russia, together with countries such as China, is an advocate of a multipolar international system with differing sets of norms. Russia is in particular against the norm of intervention in domestic issues, which is a predominant theme in its western relations.3 The US and the member states of the European Union often criticize Russia on its political system and human rights issues.
Although economic disputes often arise between countries, in Russia’s case, the question is often asked whether the economic repercussions also have a political element enclosed. As Coby van der Linde, Wilburt Perlot and Femke Hoogeveen state ‘Oil is Politics’.4 The gas cut off between Russia and Ukraine took place at the same time that the Russian government was said not to be pleased with the new pro-western government of Ukraine, which came to power after the Orange Revolution. It seems evident that the Russian government consider energy as a useful political instrument to gain more power internationally. The Russian state’s main priority in this case might not only be the modernization of the Russian gas and oil sector but also the pursuit of a better position in international affairs as well as on the global energy markets.
The following research will focus on Russian energy policy towards Ukraine, Germany and China. Russia has had different conflicts of interests in their energy relations with each of the referred countries. Through the research a general overview of Russia’s foreign energy policy will be given, analyzing Russian energy relations with regard to different countries, in different regions (Western Europe, former Soviet Union and Asia). It is considered important to fully comprehend Russia’s present and future foreign energy policy. Reasonably recent events such as challenging the security of the energy supply to the European Union and the
3 Bailes, Alyson J.K., Pál Dunay, Guang, Pan and Mikhail Troitskiy. The Shanghai Cooperation Organisation Stockholm International Peace Research Institute (2007, Stockholm) 6.
4 Linde, Coby van der, Perlot, Wilbur and Femke Hoogeveen. Tomorrow’s Mores. The future geopolitical system and the structure of the international oil market 1.
geopolitical power politics of Russia have had a serious impact on the global energy market and on international affairs. In order to fully appreciate the energy relations between Russia and the three mentioned countries, these relations will be analyzed using the theories of neorealism and neoliberal institutionalism as a framework. The theories of neorealism and neoliberal institutionalism are considered very useful in analysing Russian foreign energy relations, since these theories can be used as a framework to answer vital question concerning issues such as resource nationalism, Russia’s stance towards international cooperation and geopolitical strategies. The main question is:
To what extent do the energy relations of Russia display characteristics of the theories of neorealism and neoliberal institutionalism?
The first chapter will elaborate on the theories of neorealism and neoliberal institutionalism and the methodology to research whether Russia’s energy relations display characteristics of neorealism or neoliberal institutionalism. The theories used, share some similarities in their conclusions concerning the international system, but are different in concept and outline. To begin with the theory of neorealism of Kenneth Waltz from his famous work, Theory of International Politics, will be presented.5 Neorealism focuses on the international system; the structure of the international system directly influences the actions of states. The international system is in a state of anarchy and the state is the main focus of theorizing. Cooperation is difficult, since conflict is inevitable and security issues are the main priority of the state. From the basic presumptions made by Waltz, a likely framework can be formed on neorealist foreign energy relations. Several hypotheses are formed concerning four main themes:
Primary Actors, International Organizations, International Trade and Agenda. These four themes are chosen because they represent subjects on which neorealists and neoliberal institutionalists differ.
The next part of chapter 1 will elaborate on the theory of neoliberal institutionalism developed by Robert Keohane and Joseph Nye in Power and Interdependence in 1977.6 Neoliberal Institutionalism is optimistic on the subject of interstate cooperation; this is due to its confidence in cooperation through International Institutions. The establishment of International Institutions and Organizations promotes complex interdependence between
5 Waltz, Kenneth N. Theory of International Politics (1979, New York).
6 Keohane, Robert O. and Joseph S. Nye. Power and Interdependence (1989, New York).
states.7 Using the neoliberal institutionalism assumptions, again several hypotheses are formed using the same themes: Primary Actors, International Organizations, International Trade and Agenda. The first chapter will elaborate on the theories of neorealism and neoliberal institutionalism and how these theories relate to foreign energy relations.
In the following chapters 2,3 and 4 the hypotheses formed on the four themes of both theories are applied to case studies focused on the Germany, Ukraine, and China respectively. The timeframe of the research will include the time period of the presidential terms of Vladimir Putin and the current president Medvedev, from 2000 until 2010. The research period includes 2010 in order to give an up- to- date analysis to the extent that information is available.
Furthermore the research will mainly focus on the oil and gas markets, since these are the most important markets for Russia’s international relations.
The second chapter will concentrate on the energy relations between Russia and Germany and analyze their special relationship. Relations between both countries flourished during the presidency of Putin and the chancellorship of Schröder. Germany is largest energy consumer market in the EU for Russia. With the building of the North Stream pipeline, German dependence on the Russian energy supply is likely to increase further in the future. Although Russia and Germany have good energy trade relations, several concerns are voiced, such as Russia’s motive to keep the EU energy policy ineffective and the EU politically divided by engaging in bilateral relations. Furthermore the energy relations between Russia and Germany are argued to be asymmetrical, Russia has the power to change the relations to its liking as shown with the gas cut offs in 2006 and 2008. It will therefore be important to research whether the energy relations between Russia and Germany display characteristics of the theories of neorealism and neoliberal institutionalism.
In the third chapter, the Russian energy relations regarding Ukraine will be evaluated. As earlier noted, the energy relations between Russia and Ukraine have in recent years experienced many tensions. The gas disputes in 2006 and 2009 have damaged both the reputations of Ukraine and Russia. Ukraine is a key energy transit country for the European Union, 80 percent of the gas destined for the European market passes through the country.8 The relations between Russia and Ukraine are very interesting since they have experienced a
7 Keohane, Robert O. and Joseph S. Nye. Power and Interdependence, 35.
8 IEA/OECD. Ukraine Energy Policy Review 2006 (Paris 2006) 31.
shift from the Soviet system to an international capitalist system. It is important to research whether the gas disputes were economically or politically motivated by Russia. It will be interesting to note to what extent the energy relations between Russia and Ukraine display characteristics of theories of neorealism and neoliberal institutionalism.
The last, fourth chapter will analyze Russia’s strategical partnership with China. Under the presidency of Boris Yeltsin relations between both countries improved and energy has become a significant subject in their relations. China’s economy is growing at such a high rate that the demand for new energy resources has increased dramatically. Both countries are positioning themselves in interstate affairs as supporting multilateralism and are active in the Shanghai Cooperation Organization. However the relations between both countries suffered from the Yuko’s affair, as a result of which the construction project of a pipeline to Northeast China was cancelled. To date Russia has not really been a good trade partner to China mostly due to a slow, delayed decision-making process and ineffectiveness in implementing agreements.9 China is however responding quite mildly which, might be linked to the strategical part of their relations. The last part of chapter four will answer the question whether the foreign energy relations between Russia and China display characteristics of the theories of neorealism and neoliberal institutionalism.
In order to analyse the international relations of Russia with Ukraine, Germany and China current research on the subject will be used. Articles and publications from renowned organisation such as the Centre for Strategical International Studies and the Clingedael International Energy Programme will be referred to as well as, recently published newspaper articles, interviews, EU policy papers and journals such as the International Spectator.
Although much care has been taken to find correct information, Russian energy policy is rather opaque and not all incidents or views are reported. The research will give new perspectives on Russian foreign energy relations with regard to different countries and will give new insights in future policies.
9 Overland, Indra and Kyrre Elvenes Braekhus. Chinese perspectives on Russian oil and gas in: Russian Energy Power and Foreign Relations. Implications for conflict and cooperation CSS (2009, Oxon) 213.
Chapter 1: Neo-realism, neo-liberal institutionalism and the energy dimension in foreign policy
Introduction
One of the principal debates in Theory of International Relations during the 1980s was the debate between neorealism and neoliberalism. During the period of détente between the United States and the Soviet Union, neoliberal theories began to gain ground. Neo-liberal theories advocated the ideology of free market liberalism and the establishment of International Organizations to facilitate cooperation between states. The invasion of the Soviet Union of Afghanistan in 1979 however stimulated a new school of thought, which build upon classical realism.10 In 1979 Kenneth Waltz, published one of the most influential writings of the 1980s, Theory of International Politics.11 Both schools of thought have had an immense impact on policy formation and the actions of states.
Kenneth Waltz is the founder of neorealism. Scholars such as Joseph Grieco, Robert Jervis and John Mearsheimer have been greatly influenced by his work. Neorealism has been based upon classical realism, however it is different in the sense that it does not delve into the human nature and strategic statesmanship. In 1959 he presented three analysis levels for understanding the origins of war; human nature, the type of state regime or the international system.12 In his further writing he favoured the International System as the focal point for his theory. The International System explains the events, such as conflict and war, in the international realm. The state remains the central object of analysis. 13
Robert Keohane and Richard Nye developed the theory of complex interdependence, also referred to as neoliberal institutionalism. In their work, Power and Interdependence (1977) they set out the theory referred to as complex interdependence.14 The theory focuses on the argument that the post-war ‘complex interdependence’ is qualitatively different from earlier and simpler forms of interdependence.15 As a result this new complex interdependence has a greater impact on the international system, resulting in a new school of thought.
The theory of Waltz and the theory of Keohane and Nye will be evaluated further in the following chapter. Both theories are relevant in the research on Russian foreign energy
10 Knutsen, Torbjorn. A history of international relations theory (1997, Manchester) 268-269.
11 Waltz, Kenneth N. Theory of international politics (1979, New York).
12 Waltz, Kenneth N. Man, the State and War. A Theoretical Analysis (2001, reprinted edition, New York).
13 Ibidem.
14 Keohane, Robert O. and Joseph S. Nye. Power and interdependence (1989, New York).
15 Ibidem.
relations. Both theories also facilitate and interstate level of research. Russian foreign energy policy knows many different facades. Russia has different attitudes in dealing with energy concerns with different countries, a singular line of policy towards states is hard to find.
Russia has since the presidency of Vladimir Putin rapidly established itself as an energy power, being supported by the tight energy market and the resulting high-energy prices. The potential for Russia as a major energy power is enormous.16 The importance of studying the foreign energy relations of Russia is imperative since it is an important actor in the world’s energy market.
The Russian-Ukrainian energy relations differ vastly from the energy relations Russian entertains with Germany. The European Union (EU) is the most important energy consumer market for Russia. The EU is highly dependent on the Russian energy supply.
Germany entertains close ties with Russia, in 2005 both countries agreed to the build of the Nord-Stream gas pipeline. This pipeline runs under the Baltic Sea and connects the countries directly.17 The relationship between Ukraine and Russia can be seen as highly problematic with the gas cut off in 2009 as the most recent example. Russia considers Ukraine, as previously part of the Soviet Union, part of its influence sphere. Russia is aiming to diverge towards the Asian-Pacific region, especially to China and is planning to build an oil pipeline in direct contact with China.18
The largest Russian companies such as Gazprom are for a large part state-owned or heavily influenced by the Russian government.19 To evaluate what the main policy goals of the Russian state are is therefore essential. Although the Russian government and the companies within the energy sector claim they follow free market antics, the study of the recent history of the foreign energy policy of Russia does not support this. In the thesis the Russian foreign energy relations between Germany, Ukraine and China will be researched.
Russia has a different approach to each of these countries. The theories of neo-liberal institutionalism and neo-realism both have relevance in explaining the theoretical line of thought in Russian foreign energy relations.
The following chapter will answer the sub-question: What do the theories of neoliberal institutionalism and neorealism consist of and how do they relate foreign energy
16 For information on Russia as an energy power, consult the introduction.
17 Perovic, Jeronim, Orttung, Robert W. and Andreas Wenger. Russian energy power and foreign relations. Implications for conflicts and cooperation (2009, Oxon) 11.
18 The summary of the energy strategy of Russia for the period up to 2020, Ministery of Energy of the Russian Federation (2003, Moscow) 15-16.
19
relations? First of all the theory of neorealism of Waltz will be analyzed in the following section. In this section the key assumptions of neorealism will be reviewed. Subsequently the elements of neorealist foreign economic policy will be presented. To conclude the section the central assumptions of the theory will be linked to neorealist foreign energy relations.
Secondly, the theory of neoliberal institutionalism of Keohane and Nye will be reviewed starting with the central assumptions of the theory. To conclude the central assumptions of the theory will be linked to a neoliberal foreign energy policy. To conclude the criteria to be researched in the thesis regarding bother theories will be presented.
Neorealism
Kenneth N. Waltz in his work, Theory of International Politics, adopts assumptions of classical realist thinking but forms a new perspective of thinking related to the International System.20 Waltz diversifies from classical realism in not mentioning human nature to explain the conflicting relations between states. Waltz explains the behaviour states and the relations among states through the International System. The neorealism of Waltz is often referred to as structural realism. The structure of the International System is the central focus in explaining international relations. It is a deterministic, system level theory; the structure of the international system dictates the policy making in the states and the actions of politicians. 21
Waltz argues that the international realm is in a state of anarchy. The state of anarchy in the international realm defines the system as a whole. The central unit of analysis is the state within the international system. Waltz describes states as similar units, with similar functions. Although states are like units, Waltz argues, that they differ vastly in their capabilities.22 The difference in capabilities accounts for the power relations between states.
Waltz argues that states are, ‘unitary actors who, at minimum seeking there own preservation and, at maximum, strive for universal domination’.23 In the international system survival is the main goal of the state, this conditions their behaviour. The state of anarchy within the International System conditions the behaviour of states and emphasizes security as the central goal of the state. A key distinction, which Waltz makes, is that of a hierarchical and an anarchical international system. When hierarchy is the rule in the international system, states tend to follow suit behind the dominant super power, referred to as bandwagoning. When
20 Waltz, Kenneth N. Theory of international politics, 105.
21 Ibidem.
22 Waltz, Kenneth N. Theory of international politics, 105.
23 Dougherty, Jamers E. and Robert L. Pfaltzgraff. Contending theories of international relations, a comprehensive survey (2001, New York) 82.
anarchy is the rule, states tend to balance against each other.24 According to Waltz an International System with two major powers is preferable since they can keep each other in balance and maintain the system; less powerful states can chose to balance against one or the other.25 The balance of power is a central line in the school of thought of Waltz.
Although the existence of low politics, such as economics, is recognized by Waltz, high politics of security are the main policy goal of the state.26 Replacing security with economic issues as a priority on the international agenda would lead to an unstable international system.
Waltz is critical on international cooperation and the facilitation of cooperation between states through international institutions and regimes. Waltz points out those international institutions are only effective when the major powers are involved. This is Waltz’s main critique on neoliberal institutionalism. 27 Waltz does not believe that international institutions are a means to establish a more peaceful cooperation between states;
this is made impossible by the anarchic structure of the international system.
For Waltz as a neorealist, cooperation and trade are a complex issue. The emphasis lies on relative gain, the gain of the state should always be larger than the gain of the trade partner state. The reasoning behind this stance is that the trade partner state, when gaining more than the state, can use this capital to harm or destroy the state.28 As relative gains are important, due to the anarchic structure of the international system, Waltz is pessimistic in the prospects for cooperation between states.
Neorealism and the foreign economic policy
Literature and research on a neorealist based foreign policy or relations are sparse. Waltz’s theory of structural realism does not lend itself well to the domestic interactions of foreign policy formation. The theory rather focuses on states as unitary actors and on the system level interaction between them, it is a theory of international politics. However as Colin Elman stated on this issue, none of the arguments of neo-realists to substantiate the impossibility of a neo-realist theory are convincing, and there is therefore nothing to prevent the formulation of
24 Donnelly, Jack. Realism and International Relations (2000, Cambridge) 17-19.
25 Ibidem.
26 Waltz, Kenneth N. Theory of international politics, 152.
27 Jackson, Robert and George Sorensen. Introduction to international relations, theories and approaches (2003, New York) 126.
28 Waltz, Kenneth N. Theory of international politics, 105.
a neorealist theory of foreign policy.29 Neorealists have attempted to elaborate on the subject of the internal policy formation of the state. The scholars heavily influenced by Waltz established the theories of defensive and offensive realism.30 However for the research on the foreign energy policy of Russia, these theories do not give a clear framework. In the following section the writings on neo-realist foreign policy of Joseph M. Grieco and Volker Rittberger, Rainer Baumann and Wolfgang Wagner will be presented. The writing of Rittberger, Baumann and Wagner are the most elaborate on the subject. Neorealist theory on foreign policy according to them is still largely under construction. Both will be used to form several key assumptions concerning neorealist foreign policy, which will be used for the research of Russian foreign energy policy.
Joseph Grieco in his research, The Maastricht Treaty, Economic and Monetary Union and the neo-realist research programme (1995) outlines several key characteristics of a neorealist research programme. Although the article is specified to evaluate a neorealist research programme the key characteristics are useful especially the hypotheses Grieco formulates concerning international cooperation and international institutions. The first hypothesis is that states have difficulty to cooperate, due to fears about cheating, dependency and relative gains. The second hypothesis is that international institutions are unable to dampen these fears and therefore states do not ascribe much importance to them. The last hypothesis concerns the formation of the EU, according to Grieco; the EU is largely a by- product of a particular distribution of world power, the Soviet-American bipolarity.31 The hypothesis are useful but they do not create a framework for foreign policy, they however give a hint to what the important influences in neorealist foreign policy are, which is important to formulate an independent set of hypothesis on neorealist foreign policy to research Russian foreign energy policy.
In the academic writing of Volker Rittberger, Rainer Baumann and Wolfgang Wagner in, German policy since unification; theories and case studies (2001), an extensive framework is established on the subject of neorealist foreign policy. Their central arguments are first of all that due to the anarchic structure of the international system all states (as rational actors) strive for security. Secondly, when the security of states grows with increasing autonomy and
29 Rittberger, Volker, Baumann, Rainer and Wolfgang Wagner. German foreign policy since unification theories and case studies (2001, Manchester) 37.
30 For further information on offensive and defensive realism consult Rose,Gideon.
Neoclassical realism and theories of foreign policy World Politics, vol 51 no 1 (Oct 1998) 149-150.
31 Grieco, Joseph M. The Maastricht treaty, Economic and Monetary Union and the neo- realist research programme Review of International Studies, vol 21 no 1 (Jan 1995) 26-28.
influence, states strive for more autonomy and influence. This implies that all states can only pursue a policy of autonomy and influence within the limits of possibilities of action at their disposal as result of their relative power position. To conclude the stronger a state’s power position, the more its foreign policy will be aimed at increasing autonomy and influence, otherwise phrased power politics. 32
The concepts of autonomy, security, influence and power are important factors influencing foreign policy according to Rittberger, Baumann and Wagner. Security and autonomy have different meanings, although they lie close together in what they entail.
Security is the ability of states and societies to maintain their independent identity and their functional integrity. Autonomy is de facto independence from other actors. The less a state’s capacity for action is restricted by other states and international institutions, the more autonomous it is.33 The definition of power used by Ritteberger, Baumann and Wolfgang is the following; ‘power is the ability to assert one’s interest in the international system. As state’s relative power position is the product of polarity of the international system and the share of relative capabilities the state has at its disposal. ’34 Influence is the measure of control a state has over its international environment. States that have a sufficiently strong position in the international system therefore aim to achieve more influence and gain more autonomy.35 Rittberger, Baumann and Wagner make a distinction between influence and autonomy seeking foreign policy. For further clarification of the key neorealist foreign policy assumptions, which will be formulated in this section, both will be presented below.
Autonomy seeking foreign policy
- Non-compliance or withdrawal from, existing obligations resulting from bilateral or multilateral international agreements.
- The refusal to accept new obligations of this nature.
- The refusal to transfer national material resources to international or supra-national institutions, or the attempt to win back these resources.
- The refusal to cooperate whenever cooperation threatens to create or reinforce asymmetric interdependence.
- The formation of an alliance against a third state.
32 Rittberger, Volker, Baumann, Rainer and Wolfgang Wagner. German foreign policy since unification theories and case studies, 38-42.
33 Ibidem 39-40.
34 Ibidem 40.
35 Ibidem 39-40.
Influence seeking foreign policy
- An increase in voice opportunities in International Organizations by increasing the state’s own share in intra-organizational resources (i.e. voting rights).
- Preference for those multilateral institutions, which yield the most voice opportunities.
- Securing voice opportunities regarding the politics of powerful states and groups of states.
- The establishment, maintenance or reinforcement of the dependence of weaker states (i.e. of influence of these states).36
The influence and autonomy seeking foreign policy hypothesis support the following characteristics in foreign energy relations. In order to formulate clear criteria, four themes within foreign energy relations will be evaluated. The themes are International Organizations, International Trade, the primary actors in foreign energy relations and the main direction of the foreign relations agenda. The four themes will be evaluated below and neorealist foreign relations hypothesis related to the themes will be presented. The hypothesis will be based on the assumptions that the state has enough capabilities to sustain itself in the international system. The perspective taken is one of a powerful state, such as Russia, as that is the most relevant for this thesis. A powerful state such as Russia should aim to increase its level of autonomy and influence.
Neorealist foreign relations with regard to International Organizations are quite complicated. Waltz regards cooperation via International Institutions only to be effective when the institutions are supported by the powerful states in the international system. When using the influence and autonomy seeking foreign policy assumptions of Rittberger, Baumann and Wagner the following hypothesis on neorealist foreign economic policy regarding International Organizations and Cooperation are formed.
The first hypothesis is related to the autonomy seeking foreign policy; it is at the extreme end of the neorealist spectrum. The first hypothesis states: The states refusal to transfer national decision-making powers to international or supranational institutions, or the attempt to win back these powers.
36 Rittberger, Volker, Baumann, Rainer and Wolfgang Wagner. German foreign policy since unification theories and case studies, 46-47.
The second hypothesis regarding neorealist foreign economic policy with regard to International Organizations is relevant when a country is already member of or active in International Organizations and Cooperation. The second hypothesis is; when a state is active in International Organization and Cooperation it will aim to increase its power within the organization and cooperation structure.
The last hypothesis regarding neorealist foreign economic policy related to International Organizations and Cooperation concerns the power relations within the international system. A neorealist state will aim to use International Organizations as a tool to emphasize or establish power relations. The neorealist state is focused on power politics and achieving a higher rank in the international system as a powerful state. The last hypothesis states; the state will aim to establish, maintain or enforce asymmetric relationships with weaker states.
The second subject is that of International Trade, this is quite a complicated issue in neorealism as neorealism is focused on relative gains. However when taking into account that neorealism is focused on relative gains, in certain circumstances trade is beneficial. Two hypotheses can be formed concerning neorealist foreign economic policy related to trade; the first is based on the autonomy-seeking policy of Rittberger, Baumann and Wagner. The first hypothesis states; states following a neo-realist foreign economic policy are likely not to comply or withdraw from existing obligations, if they are a threat to their capabilities.
Another trend one would be likely to find in neo-realist economic foreign policy is that relative gains determine whether trade will take place. The absolute gain of the state is not relevant in this case; if the trade partner state were gaining more one would expect the state to cancel the trade agreement. The second hypothesis is; in trade the emphasis rests on relative gains, the gain of the state should be greater than the gain of the trade partner state.
The third theme within neorealist foreign economic policy is the question about the primary actors in the international system. In neo-realist foreign economic policy there is a strong tendency for the public sector to be the most powerful in determining foreign economic policy. The public sector in this respect controls the actions, such as trade, of the private sector. There is a strong tendency for the state to nationalize or control the private sector. This trend of nationalisation thereby also influences foreign economic policy. The first hypothesis is therefore; the primary actor in foreign economic policy is the public sector, the state.
The second hypothesis regarding primary actors in foreign economic policy is; the state is following a trend of nationalisation or far reaching influence to gain control over the economic sector.
The last theme concerns the agenda of the state. As has become clear in the theory of Waltz, security is the main objective of the state. The survival of the state is the most important policy goal and all other policies should be aimed to support this goal. The foreign economic policy should reflect and support the main goal of the state; security. A state can gain more security when it gains in autonomy and influence. The hypothesis concerning the last theme therefore is; the main goal of the foreign economic policy agenda is the security of the state. The gain in influence and autonomy of the state is a manner in which to achieve this goal.
The hypothesis derived from neorealist foreign economic policy with regard to International Organizations, International trade, the primary actors and the main agenda are going to be used to research the foreign energy relations in Russia. In the table below the hypothesis are presented to give a clear overview. The assumption is made that the hypothesis for neorealist foreign relations will be similar to foreign energy policy since energy is an economical resource.
Table 1.1 themes of foreign energy relations and neo-realist related hypotheses Four themes concerning Foreign energy
relations
Hypothesis concerning neo-realist foreign energy relations
International Organisations - The refusal to transfer national decision- making powers to international or supranational institutions, or the attempt to win back these powers.
- When a state is active in International Organisation and Cooperation it will aim to increase its power within the organisation and cooperation structure.
- The state will aim to establish, maintain or enforce asymmetric relationships with weaker states.
International Trade - Non-compliance or withdrawal from existing obligations.
- Emphasis on relative gains, the gain of the state should be greater than the gain of the trade partner state.
Primary actors - The primary actor in foreign energy
policy is the public sector, the state.
- The state is following a trend of
nationalization or far reaching influence to gain control over the energy sector.
Agenda - The main goal of the foreign energy
policy agenda is to support the security of the state. The gain in influence and autonomy of the state is a manner in which to achieve this goal.
Neo-liberal institutionalism
Robert Keohane and Joseph Nye published Power and Interdependence in 1977 as a critique on realism and an attempt to reintroduce liberal assumptions in International Relations theory.37 Neoliberal institutionalism adopts realist notions such as the focus on the state in the international system. Neoliberal institutionalism is a systemic theory, according to Hasenclever, Mayer and Rittberger the theory focuses on the external structural conditions under which governments make foreign policy decisions.38 Neoliberalism in general has been a very influential school of thought with regard to international politics.
The state is regarded by neoliberal institutionalists, as the principal actor in the international system. The state is a rational actor in the international system, trying to
37 Keohane, Robert O. and Joseph S. Nye. Power and interdependence (1989, New York).
38 Hasenclever, Andreas, Mayer, Peter and Volker Ritteberger. Theories of International Regimes (1997, Cambridge) 28.
maximize its own gain.39 Keohane and Nye argue that within international political systems, the state is the most important unit. Similar to Waltz they argue that capabilities are the power resource of the state, the distribution of those capabilities, such as power and wealth, has a significant influence on the actions of states.40 Keohane and Nye however extend their focus on international institutions. International institutions are the key element to the theory of neo- liberal institutionalism. Central in their argument is the existence of multiple channels.
According to Keohane and Nye, as bureaucracies contact each other across borders, centralized control becomes more difficult. This leads to national interests to be defined differently on different issues. Keohane and Nye argue that the existence of multiple channels result in significant role for international organisations in world politics. 41 The membership of international institutions promotes cooperation and compliance with the institutions regime.
The importance of international institutions allows the weakening of the pursuit of narrow national interests.
Neoliberal institutionalists argue that the international system is in a state of anarchy.42 The anarchic nature of the international system has consequences on the interactions between states. In this regard neoliberal institutionalists differ from classical liberalists. According to Keohane and Nye the state is the highest sovereign unit in the international system; there is no institution that stands above the state. Although neoliberal institutionalists acknowledge the state of anarchy in the international system, a different conclusion is formed to the consequence of anarchy. Neoliberal institutionalists are more optimistic about the possibility of interstate cooperation, due to the facilitation of international institutions. Conflict is possible but not as likely due to the complex interdependence between states. The central part that international institutions take in facilitating cooperation and trade encourages a more peaceful international system.
Rather than relative gains, in neoliberal institutionalism absolute gains of trade or cooperation are of importance. States aim to achieve the maximum possible individual gain;
the gain of the partner trade state is not of significance. International politics, cooperation and trade do therefore not need to be a zero-sum situation. Keohane elaborates on absolute gains in his writings, After Hegemony: cooperation and discord in the world political economy in
39 Hasenclever, Andreas, Mayer, Peter and Volker Ritteberger. Theories of International Regimes, 29.
40 Ibidem 28.
41 Keohane, Robert O. and Joseph S. Nye. Power and interdependence, 35.
42 Hasenclever, Andreas, Mayer, Peter and Volker Ritteberger. Theories of International Regimes, 28-29.
1984. Keohane argues that a state’s utility functions are independent of the other state; a state does not gain or lose utility due to the gains and losses of other states.43
According to neoliberal institutionalist, the agenda of the state is not solely focused on security. The agenda of the state consists of multiple issues. Furthermore Keohane and Nye argue issues are not arranged in hierarchy, therefore security does not always dominate the agenda but economic and social issues are important as well. 44 Social and economic issues are therefore just as likely to be present on the agenda.
The main conclusion from neo-liberal institutionalism is that cooperation and peaceful coexistence between states is possible. According to Keohane and Nye complex interdepence prevails, the use of military force becomes less likely. The cost of using military force increases due to the economic and social connections, which are facilitated by international institutions. However security issues still prevail in relations with states outside the region or outside international institutions. Therefore neoliberal institutionalists do not rule out the possibility of conflict but are optimistic that peaceful cooperation is possible, even though the international system is in a state of anarchy.45
Table 1.2 Neo-liberal institutionalism and neo-realism.
Proposition Neo-liberal Institutionalism Neo-realism
Main actor The state The state
International System State of anarchy State of anarchy
Focus The state and International
Institutions
The state and the International System
Trade and cooperation Emphasis on absolute gains Emphasis on relative gains
Agenda Multiple issues Security issues
State description Rational actor Rational actor
Interstate cooperation Optimistic Pessimistic
Conflict Possible, but less likely due to complex interdependence
Inevitable
The table 1.2 above lists the main differences between neo-realism and neo-liberal institutionalism are presented to give a clear overview of the material which has been discussed in this chapter. The following section will research neoliberal institutionalist's foreign economic policy. Subsequently hypothesis concerning neoliberal institutionalist’s foreign energy policy will be presented.
43 Keohane, Robert O. After Hegemony: cooperation and discord in the world political economy (1984 Princeton).
44 Keohane, Robert O. and Joseph S. Nye. Power and interdependence, 25.
45 Keohane, Robert O. and Joseph S. Nye. Power and interdependence, 25.
Neoliberal Instutionalist foreign economic policy
Institutional neoliberalism like neorealism is a systemic approach, in both theories the domestic policy tends to be is overlooked and is less significant. Neoliberalism has been and still is an influential school of thought in policy making. Institutions such as the World Trade Organization and the International Monetary Fund are largely based on neoliberals’
assumptions of free trade and interstate cooperation. Margaret Thatcher and Ronald Reagan were also very much influenced by neoliberalism in the 1980s. The neoliberal trend was diverging from the previous Keynesian dominant paradigm. The US, under the ‘Washington Consensus’, exported neoliberalism to developing countries, which were tied by neoliberals’
policies due to the IMF conditions for loans. Neoliberalism is a frequently used subject, however many articles do not specifically define neoliberalism, especially not neoliberal institutionalism. This is often misleading as according to prior research a neoliberals’ trend in foreign policy could signify a pro-US foreign policy or a liberal economic policy.
Neoliberalist institutionalist’s foreign policy has not been defined clearly and the research on the subject is limited. The theory on neo-liberalist foreign policy is still under construction and this section will research it further. In the following section neoliberal institutionalism in relation to foreign economic policy will be discussed.
David Harvey in, A brief history of Neoliberalism, evaluated the neoliberal states actions in theory. According to Harvey, the neoliberal state should favour strong individual property, the rule of law and the institutions of freely functioning markets and free trade.46 The account on neoliberalism of David Harvey is useful since it offers an economic perspective. According to Harvey it is the function of the state to use its monopoly on violence to preserve the freedoms at all costs. Free trade is very significant; neoliberalism believes in the ‘trickle down’ effect of wealth, poverty can best be handled by securing free markets and free trade.47 The neo-liberalist state is based on a capitalist market system; trade between states is regarded as beneficial for both states. In this regard it is based on Ricardian notions of comparative advantage.48 Harvey argues that the free mobility of capital, between sectors, regions and countries is very important. The state has a key role in negotiating the
46 Harvey, David. A brief history of neoliberalism (2005, New York) 64.
47 Harvey, David. A brief history of neoliberalism, 64.
48 Hart-Landsberg, Martin. Neoliberalism, myths and reality Review of the month (Apr 2006).
3. David Ricardo introduced his theory in 1821 in Principles of Political Economy and Taxation. Ricardo argued that a country’s best economic policy is to allow unregulated international market activity to determine its comparative advantage and national patterns of productions.
reductions of trade barriers and promoting the need for a global market. The International Agreements and International Organizations between states are based upon the notion of free trade.49 The WTO agreements are a good example of neoliberalist interstate agreements. The WTO agreements are focused on guaranteeing the rule of law and the freedoms of trade between states. The opening of capital markets is a condition for joining the IMF and the WTO. 50
The main elements of the theory of Keohane and Nye and the research on the neoliberal state of David Harvey lead to a theoretical construction concerning foreign economic policy. The themes evaluated will be the same as with neo-realist economic foreign policy, International Organizations, Trade, the primary actors and the agenda. The four themes will be evaluated in the following section and neoliberal institutionalist’s foreign policy hypothesis related to the themes will be presented. Consequently at the end of the section the neoliberal institutionalist’s foreign economic policy will be translated into neoliberal institutionalist’s foreign energy relations.
The first theme which will be researched are International Organizations as they are the key focus of neoliberal institutionalism. Cooperation via International Organization first of all facilitates a more peaceful international system. Secondly, as David Harvey describes, International Organizations also support the neoliberal goal to promote free trade. In a neoliberals’ economic foreign policy one would therefore expect that the state is active in International Organizations and Agreements promoting free trade and the cooperation between states. The first hypothesis regarding neoliberal institutionalist’s foreign economic policy concerns the active part of International Organizations. The first hypothesis is: states following a neoliberal institutionalist’s foreign economic policy are likely to be active and promote participation in International Organizations, for the advancement of free trade and further cooperation.
The second theme, international trade, is also related to International Organizations.
Keohane and Nye are focused on the absolute advantages on cooperation and trade between states. It is a distinguishing aspect of neoliberal institutionalism, whereby neoliberal institutionalism differentiates itself from neorealism. Neoliberal institutionalism argues that trade and cooperation revolve around absolute gains. The individual gain is the main objective and focus of the state. The foreign economic policy would therefore be focused on absolute gains. Trading between countries will only be focused on what the country gains from it and
49 Harvey, David. A brief history of neoliberalism, 66.
50 Ibidem 72.
not on what his trade partner gains. The importance of the gain of the trade partner is insignificant; the focus is on the state gaining. A neoliberal foreign policy pursues the idea of free trade between states. International Organizations play a key part in the pursuit of free trade. The hypothesis concerning international trade is that; the state pursues an active policy against international trade barriers (with the help of International Organizations) due to its belief in the absolute advantages of trade.
The primary actors within neoliberal institutionalism are the states in the international system. However states are not the only actors of importance in economic foreign policy, International Organizations and the private sector are also influential. Keohane and Nye refer to the multiple channels within the state. According to David Harvey, neo-liberals focus on the individual, the private sector. The state in effect is at the service of the private sector, the state maintains the best environment (a good legal system, infrastructure and so on) for the private sector to flourish. The state should therefore only be active to support the state. The state is likely to outsource or privatize on activities, which are better left to the market. The neoliberal state is therefore likely to be following a process of privatisation. The hypothesis concerning neoliberal institutionalism regarding the primary actors in the international system is as follows; within the foreign economic sector multiple actors are important. The state facilitates a good business environment.
The neo-liberal state believes in the invisible hand of the market and is likely to privatise the public sector. The state as a consequence creates more room for non-state actors, such as Non Governmental Organisations, lobby groups and businesses. The state is as it where removing itself from the public domain and only maintaining a core set of functions.
The second hypothesis regarding the primary actors in the international system, which is relevant to neoliberal institutionalism, is; the state pursues a policy of privatisation and thereby creates room for non-state actors in foreign energy policy.
The last theme concerning neoliberal institutionalism, which is going to be researched, is the agenda of the state. The agenda as has become clear in the theory of Keohane and Nye consist of multiple issues, with no clear hierarchy. Security does not always top the agenda of a neoliberal institutionalist’s state; it should be kept in mind that it remains a possibility. The foreign economic policy of the state should therefore reflect a variety of issues. The pursuit of free trade and the gains of trade are likely to be important issues in a neoliberal
institutionalist’s state. As there is no hierarchy between the issues, there is no distinction between high and low politics. High politics in realist terms meaning politics concerning state security and low politics meaning social, cultural and economic issues. The absence of this
hierarchy implies the possibility of trade-offs. As security is not the main issue trade offs between issues are made possible. The hypothesis concerning the agenda of neoliberal institutionalism is therefore; the state does not have dominant issues on the foreign economic policy agenda. The foreign economic policy agenda encompasses a wide range of issues with no clear hierarchy. Trade offs are possible due to the absence of the division between high and low politics.
The discussed themes will be researched concerning the Russian foreign energy relations. In the following thesis the Russian foreign energy relations will be tested to research its theoretical base. The assumption made is that the hypotheses formed above can also be applied on foreign energy relations. In the table below the hypothesis concerning foreign energy relations are presented.
Table 1.3 Themes concerning foreign energy policies and neoliberal institutionalist’s related hypotheses Four themes concerning foreign energy
relations
Hypothesis concerning neoliberal institutionalist’s foreign energy relations International Organisations - The state is active in International
Organisations and the formation of International regimes.
International Trade - The state pursues an active foreign energy policy against international trade barriers due to its belief in the absolute advantages of trade.
Primary actors - Within the energy sector with
regard to foreign energy policy, multiple actors play and important part.
- The state is following a trend of privatisation and thereby creates room for non-state actors in foreign energy policy.
Agenda - The state does not have dominant
issues on the foreign energy policy agenda. The foreign economic
policy agenda encompasses a wide range of issues with no clear hierarchy. Trade offs are possible due to the absence of the division between high and low politics.
Conclusion
In this chapter the theories of neoliberal institutionalism of Robert Keohane and Jospeh Nye and neorealism of Kenneth Waltz were explained and the framework to research the foreign energy relations of Russia was presented. The framework which focuses on four elements in foreign energy relations (International Organisation, International Trade, Primary Actors and Agenda) will make it possible to analyse Russia’s geopolitical strategies, resource nationalism and international energy cooperation. By using prior theoretical work concerning neoliberal institutionalist’s and realist foreign economic policy as prime building blocks, hypotheses were formed on foreign energy relations.
In the following chapters the Russian foreign energy relations with regard to Germany, Ukraine and China will be researched. To begin with the primary actors will be analysed. If
the state displays neorealist characteristics in foreign energy relations, for example Vladimir Putin and the Russian government would be the most important actors in the foreign energy relations. If neoliberal institutionalist’s characteristics are predominant, numerous actors would be influential in foreign energy relations. In this case private actors such as, international organisations, private business individuals and lobby groups would also be dominant in the energy relations.
Subsequently the stance of Russia in International Organisation will be researched. It will be interesting to note if Russia does indeed have an active neoliberal institutionalist’s stance towards International Organisation or if Russia is rather more reluctant on the subject of international cooperation. Russia’s attitude towards further cooperation within organisational forms such as the EU, the Commonwealth of Independent States (CIS) and the Shanghai Cooperation Organisation (SCO), will be analysed.
Next the international energy trade between Russia and Germany, Ukraine and China will be evaluated. The trade balance between both countries will be presented as well as further cooperation projects, such as joint ventures. Attention will also be given to recent developments in Russian foreign energy relations. Developments such as resource nationalism, gas conflicts with transit countries and energy supply diversification have a significant impact on Russian foreign energy relations.
To conclude the foreign relations energy agenda of Russia will be analysed, next to the official Russian energy strategy, indications of hidden interests will also be presented. Russia has different interests in all the three case study countries, based on its perspective of security of demand, geopolitical strategies or the improvement of Russia’s international position.
Chapter 2: The special relationship
Introduction
Along with the EU member states Italy and France, Germany promotes good relations with the Russian Federation. The former German chancellor Gerard Schröder who was in office between 1998 and 2005, enhanced relations with Russia and promoted the creation of the North Stream project, which directly links both states.51 Angela Merkel, chancellor since 2005, though more orientated towards the West and willing to voice criticism, has maintained
51 http://www.oup.com/uk/orc/bin/9780198781646/01student/biographies/gerhard_schroder/
consulted on 13/03/2010 at 11:10.
the North Stream alliance of Schröder and Putin.5253 The special relationship is to a large extent built on trade. This is in particular applicable to the energy sector. Germany is highly dependent on the supply of energy by Russia, which is their key energy supplier, accounting for 35% of the German gas supply.54
Germany is the largest consumer market in the EU for Russia. In 2008 Russia exported 36, 20 billion cubic meters of gas to Germany.55 As a comparison the second largest importer of Russian gas, Italy, imported 24, 50 billion cubic meters of gas in 2009.56 The relatively high price level in the EU is very lucrative for Russia and offers a financing platform for the recent plans of the present Russian president, Dmitry Medvedev, to modernize the Russian army.57 The recent gas disputes with Ukraine, in 2006 and in 2008 have caused major damage to the reputation of Russia as a reliable energy supplier.
Consequently, recent research regarding energy in the EU has been focused on diversification of energy supplies and alternative sources of energy.
The mainly bilateral relationship between both countries is argued to weaken the resolution of EU states to establish a common EU energy policy. Many analysts among whom, Keith Smith, Mark Leonard and Nicu Popescu, argue that it is Russia’s intention to provoke disagreement in the EU, in order to keep the EU dependent and politically divided.58
59
The refusal from Russia to ratify the European Energy Charter has created another source of much discussion. The North Stream alliance has been considered controversial since, it bypasses the Baltic States and Poland. The cost of building a pipeline connection under the Baltic Sea greatly exceeds the cost of a pipeline construction on land.60 As Germany is one of the most influential and economically significant states in the EU, the relations with
52 Rahr, Alexander. Germany and Russia: a special relationship The Washington Quarterly spring 2007, 141-142.
53 http://www.angela-merkel.de/page/126.htm consulted on 13/03/2010 at 11:02.
54 International Energy Agency Germany 2007 review Energy policies of IEA countries (2007, Paris) 96-97.
55BP Trade movements 2008 by pipeline.
http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/reports_and_publica tions/statistical_energy_review_2008/STAGING/local_assets/2009_downloads/gas_table_of_
natural_gas_trade_movements_by_pipeline_2009.pdf consulted on 24/02/2010 at 3:02.
56 BP Trade movements 2008 by pipeline.
57 McDermott, Roger. Medvedev’s ambitious military reform plans Eurasia daily monitor vol.5, issue, 211 (2008).
58 Leonard, Mark and Nicu Popescu. A power audit of EU-Russia relations European Council on Foreign Relations (2007 Cambridge).
59Smith, Keith C. Russia and European energy security. Divide and dominate Centre for Strategic and International Studies (2008, Washington) 12-13.
Russia are important to research on an academic level. Especially the question whether Russia has indeed intended to divide the EU politically and is thereby using the energy sector as a foreign policy tool.
In the following chapter the energy relations between Russia and Germany will be researched in order to find out what the special relationship consists of. As presented in the previous chapter the hypothesis concerning neorealist foreign energy policy and neoliberal institutionalist’s foreign energy policy will be used. In this chapter the following sub question will be answered; to what extent do the energy relations between Russia and Germany display characteristics of the theories of neorealism and neoliberal institutionalism?
Four aspects of both theories will be tested. The first, being the role of International Organizations in the Russian-German energy relations. Furthermore the trade relations between both countries will be researched. Additionally the main actors in the energy relations between both countries will be analyzed. To conclude the agenda of Russia concerning German energy relations will be presented.
Primary actors
With regard to Russian and German energy relations there are a variety of actors involved.
First of all the state, represented by the government officials and the president, forms the key figure. Additionally non-state actors, such as forums, business lobbies and companies are influential. The following section will research the actors in the Russian foreign energy policy with regard to Germany.
The government has played an important part in the relations between Germany and Russia. Many researchers, such as Susan Handke and Jacques de Jong from the Clingendael International Energy Programme, argue that the North Stream pipeline would not have been realised without political intervention at the highest level in Berlin and Moscow.61 During his presidential term Vladimir Putin, with an extensive German background, developed good relations with the former German Chancellor, Gerhard Schröder.62 Both Putin and Schröder were important actors in the realization of the North Stream pipeline. Gerhard Schröder also
60 Smith, Keith C. Russian energy policy and its challenge to western policy makers Centre for Strategic and International Studies (2006,Washington) 6.
61 Handke Susan and Jacques de Jong. Energy as a bond: Relations with Russia in the European and Dutch context Clingendael International Energy Programme (2007, The Hague) 32.
62 Smith, Keith C. Russia and European energy security. Divide and dominate, 12-13.
seems to have mixed the interest of the German government with his own personal interest since he is currently the CEO of the North Stream Company. Schröder even granted the North Stream Company a loan during his chancellor term and before announcing he was to join Gazprom after his term.63 The present German chancellor, Angela Merkel, has been more critical towards Russia, especially on its energy policies, human rights situation and the armed conflict with Georgia in August 2008.64 However Merkel has always announced to fully support the construction of the North Stream pipeline and supports the close business relations with Russia.65 The current Social Democratic Foreign Minister of Germany, Frank Walter- Steinmeier also promotes close ties with Russia concerning energy relations. He was the chief of staff of Schröder and is an important actor in Russian-German energy relations.66
Next to government officials, private actors have played an important part in facilitating Russian-German energy relations. The most prominent private individual is Mattias Warnig, a key ally in the German banking sector. He was a key figure in the establishment of the North Stream project and obtaining the involvement of both heads of state. He is currently the deputy CEO of the North Stream Company.67 The EU Commission has also been an important actor in the sense that it has been merely observing rather than acting.68 Much to the regret of Poland, the Baltic States and Sweden voiced concerns on the subject of the North Stream pipeline. The German request for this priority project was honoured quietly by the EU commission. Manuel Barosso, the EU Commission President and Andris Piebalgs the EU Commissioner for energy even publicly supported the project despite strong objections of several member states.69
Other private actors include an abundance of lobby groups and committee’s.
According to Keith Smith the Russian government has created friendly interest group’s in both Central and Western Europe. These groups benefit financially from their relations with Russian state energy companies.70 One of the lobby groups is the Committee on Eastern European Economic Relations (Ost Auschluss der Deutschen Wirtschaft); this group
63 Ibidem, 12.
64 Leonard, Mark and Nicu Popescu. A power audit of EU-Russia relations European Council on Foreign Relations (2007 Cambridge) 32.
65 Ibidem, 32.
66 Ibidem, 32.
67 Smith, Keith C. Russia and European energy security. Divide and dominate, 12.
68 Smith, Keith C. Russia and European Energy Security. Divide and Dominate, 6.
69 Ibidem, 6.
70 Ibidem, 9.
