Geo-economic Conflict between Russia and the EU over the Gas Market Regime

Mr Nikita  Odintsov, Charles University in Prague – Faculty of Social Sciences, Czech Republic

Overview of Issue

It has become commonplace to say that the gas trade between Russia and the European Union (EU) is characterized by interdependence. But, as the European Energy Strategy clearly shows, despite the strong economic rationale both actors have failed to achieve their mutual energy security (European Commission, 2015). My ongoing research aims to explain the economic underlying causes of the political conflict over the gas market regime and elaborate the so-called “energy security dilemma”, which was firstly introduced by (Monaghan, 2006). These issues will be addressed through the concept of geo-economics.

Methodology

From the methodological perspective, in order to explain the nature of the gas conflict between the EU and Russia this paper will use “explaining-outcome process-tracing” (Beach & Pedersen, 2013), which shall uncover mechanisms behind the energy security dilemma. This paper will show that the economic changes in the gas market have profound impact on political/institutional regimes that regulate the gas trade. These regulatory regimes influence the distribution of costs and benefits from the economic cooperation (Gilpin, 1987).

The paper will conceptualize energy security as security of supplies and demand (Yenikeyeff, 2006). Since security is a profoundly political concept the paper will use a realist approach to international political economy that gives rise to the concept of geo-economics. Baru (2012: 2) conceptualizes geo-economics as “the geopolitical consequences of economic phenomenon or as the economic consequences of geopolitical trends and national power.” Based on Konoplyanik’s research (2013) the paper will explain the evolution of energy markets from an oligopoly to a competitive market. This evolution requires the reorganization of an institutional regime which sets the rules for economic intercourse. However, since these economic changes proceed unequally, the costs and benefits from this intercourse are also distributed unequally. The paper will explain how these economic changes will affect four structural elements of the regulatory regime of the EU gas market: institutions, interdependence, distribution of the costs and benefits, and perspective of the future cooperation.

Results

The rise of liquid spot markets in Western Europe is contrasted to the rather rigid structure of the Russian gas market. Thus Russia and the European Commission, which tries to build an internal gas market, prefer different types of the regulatory regime. The struggle is going over the establishment of the specific regulatory institutions that will lock-in the unequal distribution of the costs and benefits and the asymmetric pattern of interdependence. We can observe this conflict along the whole supply chain in Europe. As both actors pursue their respective vision of the energy security, the energy security dilemma emerges.

Conclusions

The conclusions will highlight the potential of the use of geo-economic approach to the study of energy relations between importing and exporting countries. On the example of relations between Russia and the EU the paper will show how the innovation in the energy markets may bring about “political disruptions.”

Keywords

energy security; gas; geopolitics; geo-economics

References

Baru, S. (2012). “A New Era of Geo-economics: Assessing the Interplay of Economic and Political Risk.” IISS Seminar.

Beach, D., & Pedersen, R. B. (2013). Process-Tracing Methods. University of Michigan Press.

European Commission (2015). European Energy Strategy, COM(2014) 330 final. Retrieved from http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52014DC0330&from=EN.

Gilpin, R. (1987). The Political Economy of International Relations. Princeton, New Jersey: Princeton University Press.

Konoplyanik, A. (2013). ГАЗОВЫЙ РЫНОК ЕВРОПЫ: Нефтегазовая Вертикаль, (15-16), 16–24.

Monaghan, A. (2006). Russia-EU Relations: An Emerging Energy Security Dilemma. Pro et Contra, 10(2-3), 1–13 (13).

Yenikeyeff, S. M. (2006). Oxford Energy Comment The G8 and Russia: Security of Supply vs. Security of Demand? Oxford Energy Comment, (August). Retrieved from www.oxfordenergy.org/wpcms/wp-content/uploads/2011/01/August2006-TheG8andRussia-ShamilYenikeyeff-.pdf