Ukraine crisis makes Russia look east

Ukraine crisis makes Russia look east

After Western leaders talked last week about penalizing Russia further, President Vladimir Putin asked for a diplomatic resolution on the Ukraine crisis. Yet, a Russian move towards ‘Eastern allies’ is still on the table.

In his speech in Brussels on March 26, US President Barack Obama stressed the need for “deeper sanctions” against Russia, should President Vladimir Putin attempt to move forces in other parts of Ukraine. European leaders agreed to join forces with the United States and appeared determined to draw up a strong package of economic sanctions in case of Moscow’s further intervention into eastern Ukraine.

However, on March 28, President Putin, concerned about the potential marginalization of Russian Federation, called President Obama to discuss a diplomatic solution to the Ukraine crisis. Yet, given the political clout and economic importance of Russia, it is not clear whether the country could ever be economically isolated or whether Russia can easily find ‘support’ from its Far-Eastern allies.

So far, steps towards penalizing Russia have been limited to visa bans and asset freezes against a number of Russian officials. Although some officials say that those sanctions are the toughest imposed on Russia since the end of the Cold War, President Putin does not seem concerned enough to change his expansionary policy in Ukraine. The need for further sanctions appeared imperative in the eyes of both European and United States leaders, triggering turmoil over the potential impact on the world economy.

There are strong trade between Europe and the Russian Federation, with the European Union being Russia’s number one trade partner. Moreover, Europe is highly dependent on imports of oil and gas, with countries such as Estonia, Latvia and Lithuania purchasing almost all their natural gas from Russia. In terms of direct investment, more than 6,000 German companies are registered in Russia having invested 20 billion euros during recent years. There is legitimate concern that imposing economic sanctions may not only have a destabilizing impact for both European and Russian economies and harm investors’ interests in the region, but also result in a high number of job losses.

A potential imposition of economic sanctions on Russia by the West may lead Moscow to redirect its trade relations towards the East. According to Jim Ensom the fact that Russia’s energy production (particularly of oil and gas) currently goes to the European Union does not mean that China (one of the largest consumers of energy in the world) could not become the Russia’s primary partner in terms of energy trade. Although Beijing’s interests go against interference on the issue of the Crimean annexation (due to the case of Tibet), China remained neutral and warned the West on the risk of potential economic sanctions.

Sino-Russian relations have remained limited for decades due to mutual mistrust. Conflicting interests in Eurasia have also played an inhibitory role in boosting economic cooperation. Nevertheless, the last decade marked a strengthening in relations of the two countries, which also revealed a mutual attempt to move away from the West. After a decade of rising Sino-Russian trade relations (see chart below), China eventually became Russia’s second trade partner in the first half of 2012. In June 2013 ties between the two countries were further boosted as Russian Rosneft signed an energy supply deal of 270 billion US dollars with China.

Russia trade

The likelihood of Russia getting even closer to China to the detriment of the European Union is considerable and seems even more significant in view of the recent political dispute between the West and Russia over the Ukraine crisis. Although President Putin has asked for a diplomatic solution in cooperation with the United States and declared that there is no intention to invade Ukraine, the turmoil has not been resolved yet. Even if there is indeed a sincere intention to cooperate and not intervene further in Ukraine, the European Union should focus on drawing its own, separate policy on the issue of Crimea annexation bearing in mind the necessity of maintaining its strong economic ties with the Russian Federation. Russia has other places to look for partners.

Categories: Economics, Europe

About Author

Evita Souri

Evita previously worked with the European Commission, dealing with EU external relations as well as with other governmental institutions. Her expertise is in European Union affairs and the former Soviet Union countries. Evita graduated with an MSc European Political Economy from the London School of Economics (LSE). She also holds a 1st - class honours Master's degree in Economics from the Aristotle University of Thessaloniki where she also completed her undergraduate studies in Economic Science.