The Soviet Union is still collapsing7 min read
Russia’s gas exports have claimed the headlines again, as war in Ukraine rumbles on and sanctions against the Russian regime are brought back on the table. Webs of metal reaching from the Urals to Berlin are a defining piece of infrastructure that contemporary Russia inherited from its socialist past, and they are a key piece in the puzzle of why the Soviet Union never stopped collapsing. While flags changed and Gorbachev brought free markets to the bloc, the economic interdependencies and links among the former Socialist market did not simply disappear overnight.
Although Communism imploded in Europe, some links remained, and beyond ideology, the modern gas trade in Europe is not too different from its Soviet past. The European dependency on Russia has only grown since the end of the Cold War, while gas trade continues to bring revenue to the Russian state.
The 2004-5 Orange Revolution in Ukraine was the first of a set of external events that shook the gas dependency structure between Russia and Ukraine, and the 2014 annexation of Crimea changed the system beyond repair. Russia has been looking for avenues bypassing Ukrainian pipelines into Europe, while at the same time expanding its gas exports to China. Ukraine, on the other hand, is sternly opposed to Nord Stream 2, an additional gas pipeline running under the Baltic Sea from Russia into Germany, in effect attempting to maintain its importance in the gas trade and aware that Russia seeks to secure its exports to Europe.
The European Union (EU) is actively seeking to shake its dependency on Russian gas, while the United States is promising to increase its exports to the EU. In light of the war, the moral aspects of the gas trade are making their way into statecraft, and the gas trade between opposing blocs is becoming politically unsustainable.
After the economic transition and crises of the 1990s, Russia emerged as a major export economy in the global supply chain. In essence, it inherited not only the legal obligations of the Soviet Union but also its economic resources. The vast industrialization and exploitation of natural resources that the Soviets achieved, their Marxist economic machine, transformed into an integral chain in the emerging global free market. Its main sectors of production have not considerably changed, either. Russia sells what it mines and grows.
In the 1990s, Russia’s focus on exporting energy and commodities was seen as a positive. If Russia wanted to integrate into the global economy, it would have to find its place in a world governed and dictated by the West, with the United States leading it. This was the era of ‘the end of history’. Many experts saw no alternatives to the US-led order, but the West was not simply blinded by neoliberal triumphalism. The liberal success story of European integration began as the economic integration of the coal and steel industries between France and Germany in 1952. The economic miracles in South Korea and Japan during the Cold War further bolstered the perceived transformative power of liberal economies. Much of American influence in the world emanates from its economy. But interdependence works both ways.
As a major exporter of gas and oil, Moscow is in a position of great leverage in relation to the EU. Russia has shielded itself from sanctions by building up its foreign currency reserves, especially in US dollars, while keeping its debt obligations down. By building up its reserves of foreign currency, Russia planned to retain its ability to pay its outstanding obligations even if its own currency experiences high inflation – a scenario that immediately became reality as the invasion began.
Mr. Putin’s demand to collect payments for gas exports only in rubles is an attempted tool of maintaining the state’s domestic payment ability, as its access to foreign currency became restricted. A crucial question that remains is how long those currency reserves will last. This will largely depend on how hard sanctions will hit the Russian economy, and by extension, how hard the West is willing to damage its own economic growth. Since Russia has been kicked out of international payment systems, like SWIFT, and much of its foreign assets have been frozen, another question is whether Moscow will be even able to pay its obligations to lenders. If nothing else, sanctions are placing Russia on a tight timetable.
From this position, fueled and protected by the very economic links that integrated Russia into the global economy, Mr. Putin has felt secure enough to start an invasion.
Russia’s use of natural gas exports as an energy weapon has been long discussed. European dependency on Russian gas imports have made Europeans skittish around the Kremlin and made its responses to earlier crises lackluster. It was easy for some European leaders to shy away and see Russian aggression in Georgia and Ukraine as peripheral conflicts while billions of cubic meters of natural gas flowed into the Union. Germany was a particular example. In a country where the political scene abhors nuclear power, the demand for Russian gas was all but guaranteed to remain high – which fit into the long postwar pattern of pacifism and focus on liberal economy that dominated German politics. This is what has also made Berlin’s U-turn in policy to supply Ukraine with arms so surprising, and it appears, also characteristic of the broader European response to the current war in Ukraine.
At the same time, it must be mentioned that The United States did not fail to take advantage of decreasing appetite for Russian gas after the 2014 annexation of Crimea. Its foreign policy in Europe has included the funding of new liquified natural gas plants in European ports, while also contributing to the building up of road infrastructure in post-Communist Europe, further incentivizing the pivot away from Russian gas imports. The Biden administration has also promised to further increase its LNG exports into the EU by the end of 2022.
The structure of the gas trade that Russia and Ukraine inherited from the Soviet Union has played a large part in how their relations have been shaped. Like the names given to the trunk pipelines (e.g. “Friendship” and “Union”) and Mr. Putin’s talk of historic Russian unity, they are a smokescreen for Russian imperialism. It is also that same long-standing imperialism – always shrouded behind rhetoric – that has guided Russian foreign policy for a century. As a self-perceived great power, Russia strives to enact its foreign policy through countries in Eastern Europe as a tool for maintaining its position on the international stage. Since its inception, the gas trade has been an excellent foreign policy tool.
Major Russian gas pipelines to Europe / Wikimedia Commons
The gas trade between Ukraine, Russia, and the EU is breaking down – and has been since 2014. The war only accelerated an ongoing trend. Gazprom has already had success in diversifying exports through other pipelines and through new connections to China to replace falling European gas revenues. Ukraine’s uncertain trajectory has been determined; it strives to disentangle itself from Russian energy, as its politics has veered toward Europe and away from its Soviet past, and the EU, in the middle of a shift in energy policy toward renewable sources, will only separate faster from Russian gas. The old Soviet dependency, in its last legs, will crumble in the coming years.
Ukraine is aware of its position between Russia and Europe. By retaining its vital role as Russia’s gateway to European markets, its position seemed secure, while also profiting from transit fees. Yet, the seismic shifts in Ukrainian politics during and after 2014 caused a rift between its domestic politics and international position. Ukraine seeks to join the West and to be European, while it is still, literally, tethered to the past.
Before the invasion began, the West gave no reason to think that it would get involved. Neither the EU, NATO, nor the US seemed willing to get entangled in an armed conflict. But bombs had an unexpected effect outside Ukraine: the popular response against the war was immense and aid is pouring into Ukraine, even as Moscow reminds of its nuclear arsenal. Long-standing policies were reversed, and the EU found itself in a sudden moment of unity.
NATO presence on Europe’s eastern borders is fast growing. It seems a shift in outlook has occurred in Europe, caused by the need to understand Russia and its foreign policy. In this, post-Communist Europe appears vindicated. As a result, the end of the gas trade and the dependency that goes with it is in sight. Its end will most likely not mean the end of oligarchies in either Russia or Ukraine, but when the already rusting pipelines are finally gone, it will instead mean that, finally, one of the last pillars of the Soviet house has collapsed. There will be a world beyond post-Communism.