Far to the east – beyond the outermost borders of the EU – lays another, mirroring Union in Europe. A Union which remains largely ignored by the West, but which is gaining more power and more international traction while still under the guise of a small and mostly failed pet project of the Kremlin. The Eurasian Economic Union (EAEU), born from the ashes of the USSR, has slowly been creating a growing economic bubble and enhancing its free trade with third countries.
This cooperative Union between Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia developed from previous, smaller-scale international agreements, but it has since become much more. The EAEU now provides for complete free movement of goods, services, capital and labour, and pursues an upgrade in competitiveness and cooperation amongst its national economies, in order to raise living standards.
Because it has isolated its members from the global markets by raising external tariffs, the EAEU’s importance in the region is paramount, and its clout is giving no sign of deflating any time soon. And while it remains an economic union for now, Putin’s explicit aim has always been that of converging even in political and social fields, and enlarging the Union to include all post-Soviet states (with the exclusion of the three Baltic countries which are already part of the EU).
But how exactly has this Moscow-led project managed to gain so much power since its very recent creation in 2015? In the following paragraphs, we will try to analyse what makes the EAEU such an important actor in the northern Eurasian region, and why the West underestimating it could prove to be a fatal mistake.
A brief history of the Eurasian Union
The EAEU as it is today was only formed in 2015, but it is the product of many previous, gradual economic mergers. The first inklings of the future existence of the EAEU came in 1994 from Kazakhstan – a meagre three years after the dissolution of the USSR. The original proposal consisted of a “common defence” space and regional trading bloc to bolster the uncertain economies of the post-Soviet satellite states. The idea quickly gained widespread approval, especially considering the West’s own unification was strengthening its economic and soft power. One year later, Belarus, Kazakhstan, and Russia created a Customs Union which would – ideally – eventually lead to an area with open borders and no passport checks.
Following the blueprints left behind by the integration process of the European Union – and most importantly learning from its mistakes – in 2000 Belarus, Kazakhstan, Russia, Kyrgyzstan, and Tajikistan eventually established an Eurasian Economic Community operating very similarly to the European Economic Community. Further integration led to the creation in 2015 of a single market and of unified industrial, transport, energy and agricultural policies – the Eurasian Economic Union. The organisation of EAEU institutions today closely reflects the structure of its western counterpart. The goal, at least for Moscow, has always been that of eventually creating a supranational and intergovernmental institution operating just like the European Union, and with similar competences.
A ticking time bomb
The reason why the EAEU lays largely underestimated is that its growth has not been the exponential one which has characterised the EU in recent decades. However, even though its growth may have been slow, it has also been inexorable; its clout in the region has been increasing day after day. It has proved quite beneficial for Putin that his project has so far remained in the shadows. It means that not many are aware of just how many countries have interest in the project, and just how economically strong it could become. Experts predict a 25% growth in the Member States’ GDP by 2030, which equates to around 488 billion euro. And of course, the prospect of access to a common market of over 183 million people is an appetising one.
Currently, the Union only counts five full members, a factor which has contributed to its anonymity. However, many more are in the process of negotiating accession. Moldova has recently become the first observer state in the Union. Tajikistan has been formally invited to join and has expressed interest in acceding. Uzbekistan, while hesitant to join, enjoys free trade with EAEU countries and is likely to become a full member as commercial ties with its neighbours strengthen.
Moreover, many unrecognised republics in the region – such as Transnistria, South Ossetia, and Abkhazia – have strongly backed EAEU membership. And Putin hasn’t stopped there, extending official invitations to join to Turkey, Ukraine, Syria, Mongolia, and Azerbaijan. While some, like Turkey, have rejected the invitation in favour of pursuing EU membership, many more have been eyeing it positively as a way to enhance their trade and boost their economies.
But what Russia wants to achieve from this project can’t be simply ascribed to nostalgic empire-building. While it is undoubted that the Kremlin is slowly reassembling the vestiges of the USSR under its thumb, it is also expanding its influence outside of the traditional territories, betraying that there is much more at play. For one, Russia benefits from being the bridge between Europe and Asia, in particular the New Silk Road economic belt. Facing off against powers such as the EU, India, the US, and China, a union of countries serves to maintain the Kremlin’s relevance as a fundamental international actor.
Secondly, administering a federation which has an appalling lack of job diversification and is facing a sharp economic decline, Putin has specific challenges to face. Having a free market to feed its few exports into, and having the opportunity to get a variety of imports from its partners without tariffs is a way to keep the economy afloat while the process of diversification takes place.
The EU’s crux: energy reliance
The existence of the EAEU has allowed Moscow to keep one important advantage against other countries: the dominion over energy supplies. The EU has long since been trying to reduce its dependence from Russia in oil and gas and has developed many short and long-term strategies to wean itself off the Kremlin. Russia, on the other hand, since its economy is mostly propped up by these exports and has been using energy as its main leverage against sanctions from the West, has been trying to maintain its monopoly on oil and gas exports.
To do this, maintaining the Eurasian Economic Union is fundamental, as it is considered an energy superpower. It produces about 20.7% of the world’s natural gas and 14.6% of the world’s oil and gas condensate – the world’s top producer. It also produces 9% of the world’s electrical energy and around 6% of the world’s coal, making it the third and fourth producer respectively on a global scale.
To ensure that Russia and its partners maintain this important primacy which keeps their economies alive and gives them immunity against sanctions from the West, the EAEU plans on collaborating more in its energy production and distribution. By 2019, it intends to create a common electricity market and, by 2025, a single hydrocarbons market. This will ensure that the EAEU and its single member states maintain their relevance and become even more competitive in the energy supply market, and it will make it much harder for the EU to become completely free of Russia when it comes to this matter.
Contested spaces: the Eastern Partnership
As both the EU and the EAEU seek to deepen their ties with several former Soviet Republics, another possible consequence of the EAEU’s silent rise to power is that tensions with the European Union are bound to increase. This holds especially true if both continue enforcing their “one-or-the-other” policy when it comes to bloc accession. Because the EU has an external trade policy, no individual member country may independently negotiate to be within other economic unions, and the EAEU’s single market is an example of that. This has meant closing the door to deeper cooperation with some potential future Member States, such as Armenia, which is now a full member of the EAEU.
Equally, homogenisation with EU economic and governance requirements closes the door to EAEU membership, as Georgia’s example has proved. The struggle to bring these countries on their side, especially those which comprise the EU’s core Eastern Partnership (Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova, and Ukraine) may be the side effect of radicalising political discourse and international influence in these territories.
In the long term, Azerbaijan is going to be an especially important player in this dispute between the EU and the EAEU, as it has so far failed to expressly align with either. While government officials have repeatedly backed EU membership, they have also opened the country to the possibility of deeper ties with the EAEU, especially in light of its very active defence and military trade with Russia. Its importance becomes paramount if its gas and oil supplies are taken into account: for the EU, having Azerbaijan amongst its members would constitute a great way to bypass reliance on Russia. The only route to bring Caspian energy to Europe other than via Russia is through the South Caucasus – in particular, though Azerbaijani pipelines.
However, if it were to align with the EAEU, it would effectively perpetuate Russian dominion over oil and gas supplies to the West. In the short term, though, it will be Serbia which will be the testing ground for a more mature and effective policy by the European Union. The country has at the same time applied for a free trade agreement with the EAEU, while it is in advanced negotiations with the European Union regarding membership.
Iran, Syria, and the nuclear deal
One game changer for the whole geopolitical scenario in the area is the upcoming free trade agreement between the EAEU and Iran, which has been in the works since the birth of the EAEU and will be finalised this May. The importance of Iran as a key trading partner and strategic ally must not be underestimated. For Russia, Iran is in a fundamental position when it comes to its geopolitical interests in Syria. Having the freedom to move armaments and raw materials so close to the conflict with more freedom could prove invaluable. Iran is also Syria’s closest ally and has had positive cultural, religious, and political ties to the country for decades before the civil war. The positive implications which being on friendly relations with Iran could have for Russia after the end of the civil war are easily deductible.
This is also a perfect occasion for Russia to capitalise on the Iran nuclear deal. Russia has some of the world’s foremost expertise in atomic energy and has helped build reactors in Iran for many years. It comes then as no surprise that the Kremlin has been making the most of the lucrative contracts to expand Iran’s civil nuclear energy program, and it could especially benefit from them within the context of a free trade agreement.
Trump’s trade war: pushing Asia towards Putin
The souring of the relationship between China and the US, which comes as the expected consequence of the increased custom duties on exports of steel and aluminium imposed by Trump, may also be beneficial to the ties between ASEAN countries and the EAEU. The Moscow-led union has actively been trying to increase its ties with Asia, in particular Eastern Asian countries. With many important Russian companies cut off from business deals with the West due to economic sanctions, this is an important avenue for new economic opportunities.
The EAEU has been careful to foster good ties with many emerging powers in Asia. For example, it concluded a free trade agreement with Vietnam in late 2016. The country has boomed in the past thirty years and has a prospected GDP per capita growth of over 6%, making it one of the most dynamic emerging countries in East Asia. Moreover, the EAEU has strengthened cooperation with China in light of its concerns over the Siberian-Chinese border, taken part in the Eurasian Initiative launched by South Korea, and set up expert groups to develop preferential trade regimes with India and Israel. While progress has not yet been very evident on this front, the EAEU seems content for now to build its larger market slowly and quietly.
Currently, the EAEU is nothing but a single common market and economic space. If it were to continue without any modernisation or real economic development, it is unlikely that the EAEU would succeed in its aims. However, expansions and developments are taking place, albeit slowly, and they will probably lead to a concentration of wealth in the territory, which will also largely boost its attraction factor towards even further expansion. Concerns about keeping national sovereignty intact from Russia will end up on the backseat in the face of an economic boom. This has the possibility of finally leading to further monetary, political, and military convergence, as desired by Putin.
This has been particularly evident in his insistence in creating what Belarusian President Lukashenko has dubbed “the new euro” – a common currency for EAEU members. He has been so successful in his coaxing that the Eurasian Commission (an institution with a very similar role to its European Union counterpart) has already drafted documents to establish a Eurasian Central Bank and a common currency called altyn, both of which will be introduced by 2025 at the latest. Moreover, steps will probably be taken in the direction of establishing a parliament and slowly centralising competences to the EAEU’s institutions in Moscow.
What we are witnessing are the first stages of a slow but continuous convergence even within fields other than the economic one, which will eventually lead to it emulating the European Union even more. However, unlike the EU, the boast of consensual decisions within the bloc is but a façade. The Russian domination over the other member states is quite evident, even if formally all Member States are equal. Overall, it is evident that the ascent of the Eurasian Economic Union has just started, and that it will become a much more important player in the upcoming years.