Keywords

1 Introduction

With its formal establishment in 2015, the Eurasian Economic Union (EAEU) presents one of the most comprehensive Russian-led integration projects in the former Soviet Union. Totalling just over 180 million people and covering 20 million square miles, the regional organisation emulates many of the functions of the European Union (EU) by establishing legal approximation between its members and facilitating the movement of goods, persons, and capital across its members. While comparable in structure and purpose to the EU, the geography of the EAEU has provided it with a major distinguishing factor: access to energy, particularly through the massive reserves of oil and gas in the Russian Federation, and deposits of uranium throughout Kazakhstan. In addition to containing no deposits of fossil fuels, the Republic of Armenia—the smallest EAEU member—is geographically disconnected from the rest of the Union, leaving it dependent on the transit of Russian natural gas through neighbouring Georgia.

This chapter explores how exactly regional organisations such as the EAEU and the EU theorise the concept of ‘energy unityʼ, and how their different approaches may reflect that of an energy importer and an energy exporter. It explains how the founding treaty of the EAEU lays the foundation for a unified energy policy, and how such a policy would differ from previous interactions between the Russian Federation and former Soviet Republics in the sale and transit of energy. The present analysis is primarily focused on natural gas—specifically, the formation of a common natural gas market. Furthermore, the chapter examines how the potential emergence of an EAEU energy policy would impact the delivery of natural gas to the Republic of Armenia and how this process would compare to energy delivery among smaller states of the EU. In its analysis, the chapter draws upon existing literature on the topic of energy integration in the EU, including Energy Security in Europe (Szulecki 2018), which provides a broad overview of the securitisation of energy policies among EU members and the political dimensions of energy delivery among the EU member states. Additionally, External Energy Security in the European Union (Mišík 2019) was used extensively in developing a comparative perspective between energy delivery in the EU and the emerging energy policies of the EAEU. With regards to studying the EAEU, the founding treaty of the organisation is used as the basis for conceptualising Eurasian energy integration (Supreme Council of the Eurasian Economic Union 2014).

2 The Eurasian Economic Union

The Eurasian Economic Union is a regional organisation made up of five former Soviet Republics: Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. The concept of an ‘Eurasian Unionʼ was first mentioned by Kazakh President Nursultan Nazarbayev in a 1994 speech at Chatham House and later in an address at Moscow State University (Raikhan 2013). The project is an elaboration of earlier Russian-led integration projects in the post-Soviet space, such as the Customs Union of Belarus, Kazakhstan, and Russia, and the CIS Free Trade Area. What sets the EAEU apart from these earlier integration projects is the creation and usage of super-state institutions in its decision-making process, such as the Eurasian Economic Commission and the Court of the Eurasian Economic Union. In this sense, the EAEU emulates much of the structure of the EU and is also committed to upholding the freedom of movement for goods, capital, labour, and persons between its five members. What sets the EAEU apart from the EU is the lack of financial integration between its members and its exclusive emphasis on economics, as organs such as the European Parliament have no equivalent in the EAEU.

Decisions regarding the development of EAEU energy policies are made by two bodies: the first is the Supreme Eurasian Economic Council, a gathering of heads of state analogous to the European Council, which develops the direction of the Union; the second is the Eurasian Economic Commission, which handles the regulatory aspects of policy and acts as the organisation’s chief collector of statistics and data. The Commission’s decision-making branch features two subgroups: the Council of the Eurasian Economic Union, made up of vice prime ministers from each member state, and the Board of the Eurasian Economic Union, made up of two representatives from each member state and a chairman (Supreme Council of the Eurasian Economic Union 2014). While political will and support for European integration expanded the initial free-trade agreements, from the Treaty of Rome (1957) to the establishment of a super-state structure reminiscent of a federal model, there has been little enthusiasm for expanding the EAEU’s structure or developing a wider focus beyond economics. The organisation’s narrow scope and relatively small decision-making process make the EAEU an effective regulatory body, but it lacks the initiative to dictate and coordinate polices or create programs as wide spanning as the EUʼs Common Security and Defence Policy.

The EAEU is a net exporter of energy. This energy export is primarily made up of oil and natural gas, with radioactive materials like uranium representing a portion of Kazakhstan’s external energy trade. The sale of electricity is also part of the EAEU’s energy portfolio, due to the continued usage of Soviet-era power grids between member states (Pastukhova and Westphal 2018). In 2017, the Union produced 18.4% of the world’s natural gas; 98.1% of this figure is the product of Russia, while the remaining 1.9% comes from Kazakhstan (Zemskova 2018). Belarus is part of Russia’s wider network for the transit of natural gas and oil to Europe, while Armenia and Kyrgyzstan are dependent on the import of natural gas to meet their energy demands (ibid.). Energy delivery between the EAEU members is largely dependent on earlier Soviet-era infrastructure.

3 Energy Unity as a Core Principle: A Close Reading of the EAEU Founding Treaty

The development of an ‘Energy Unionʼ or common set of energy policies is an ongoing process within the EU. The disruption of natural gas and oil supplies during a series of disputes between the Russian and Ukrainian governments in the early 2000s was a catalyst for this process and wider discussions on energy security (Siddi 2018), which saw a renewed interest in the wake of the 2014 annexation of Crimea (De Micco 2014). The European Commission has drafted sets of policies known as ‘energy packagesʼ to approach this topic. The first of these policies, known as the First Energy Package (1996), provided a legal groundwork for the liberalisation of gas and electricity markets (European Parliament 2020). Since the crafting of the First Energy Package, several similar policy collections have been developed, with the most recent Winter Energy Package (2016) covering the development of clean energy sources as part of the EU’s energy policies.

Unlike the EU, the EAEU has explicitly incorporated the concept of an energy union in its founding treaty, in the form of a proposed common market for gas, oil, and petroleum products, as outlined in Section XX of the Treaty on the Eurasian Economic Union titled “Energy Industry” (Supreme Council of the Eurasian Economic Union 2014, p. 85). Article 79 of the same Section, “Cooperation of the Member States in the Energy Sphere”, outlines the core principles of the EAEU’s energy policy, which include “ensuring market pricing for energy resources” and “the development of competition in the common markets of energy resources” (ibid., p. 86). This Section also includes clauses specifying that member states will remove any physical and legal barriers to energy trade between one another, as well as a clause stating that member states will harmonise “national rules and regulations for the functioning of the process and business infrastructure of the common markets of energy resources” (ibid.).

This Article is followed by provisions for tracking the EAEU’s balances in natural gas, oil, and petroleum products. Access to these three areas of energy are elaborated upon, with natural gas being covered in Article 83: “Establishment of a Common Gas Market and Ensuring Access to Services of Natural Monopoly Entities in Gas Transportation” (Supreme Council of the Eurasian Economic Union 2014, p. 89). While the previously mentioned Article 79 outlines the broader elements of cooperation between the EAEU members in the field of energy trade, Article 83 provides a substantive base for what would become the EAEU’s common gas market. In addition to explicitly specifying that member states must establish a common gas market with the approval of the EAEU’s Supreme Council, the Article also states that the EAEU members must allow “unhindered access for economic entities of other Member States to gas transportation systems located on the territories of the Member States to enable gas transportation on the basis of common principles, conditions and rules provided for by Annex 22 to this Treaty” (ibid.). Annex 22 categorizes gas delivery infrastructure as a natural monopoly and therefore subject to a standard of access for other EAEU members. This means that the gas delivery infrastructure located in an EAEU member state may be used by firms and other legal entities registered with an EAEU member and access cannot be reserved for a single nationality within the EAEU. Annex 20 of the EAEU Treaty, “Protocol on Common Principles and Rules for Activities of Natural Monopoly Entities”, lists natural gas pipelines and other elements of energy delivery belonging to Belarus, Kazakhstan, and the Russian Federation as being part of a “natural monopoly”, carried over from the three countries’ previous customs union in the early 2000s. The window of time for the transition to a common energy market is listed in Section XX, Article 104, with the concept of a common gas market being approved by 1 January 2016, the programme for its creation being finalised by 1 January 2018, and the entry into force for this common gas market occurring before 1 January 2024. By 2025, the EAEU members must finalise the Treaty, “including the common rules of access to gas transportation systems located on the territories of the Member States” (ibid., p. 127). Section XX closes with the Eurasian Economic Commission being tasked with monitoring the implementation of these clauses.

While the EAEU is a relatively underdeveloped integration regime compared to the EU, it is considerably more explicit in outlining what a common market for natural gas between its members would look like. This may be due to the EAEU’s status as a net exporter of energy, with its largest economy, the Russian Federation, being dependent on both the sale of energy and the use of the EAEU members (such as Belarus) as a conduit. With this in mind, the creation of a common market for natural gas can be interpreted as partially an effort by Moscow to cement Russia’s role as an energy provider among the four other EAEU members for a greater political gain. Considering that changes in gas tariffs have previously been used as a means of exerting pressure on states of the former Soviet Union in order to dissuade their engagement with the EU (European Parliament Policy Department 2018), it is unlikely that Russian authorities would surrender this policy option and allow for uniform gas pricing and continued access unless they were confident in the EAEU membersʼ long-term commitments to Russian interests. Additionally, the development of a common market for natural gas signals Russiaʼs potential movement towards bureaucracy and legal systems as a means of maintaining its status as an energy supplier, and away from energy supremacy asserted solely through the operation of pipelines and other legacy equipment of the Soviet Union.

Compared to the EAEU, much of the EU’s posturing towards the development of a unified energy policy seems to be reactive and focused on ensuring continued delivery through a crisis. One effort to generate such a unified energy policy towards natural gas is Council Directive 2004/67/EC, “Concerning measures to safeguard security of natural gas supply” (Council of the European Union 2004). The Directive frames the delivery of natural gas largely as a security concern, emphasising the necessity of the EU members to assist one another in ensuring the minimum required delivery of natural gas. This includes the addition of a “Community Mechanism”, which states that in the event of a major disruption of natural gas delivery, a member state may initiate a meeting of all the EU members in order to ensure that short-term energy needs will be met and a long-term solution will be developed (ibid.). Additionally, while the Treaty of Lisbon (2007) mentions the development of a Union-wide approach to energy and the EU took comprehensive steps towards the development of an energy union through the aforementioned energy packages, these policies are again framed as a reactive response and grounded in the EU’s status as an energy importer (Eikeland 2011). While there have been efforts to establish a common market for the sale of natural gas in the Union, progress has been largely limited to the theoretical stages, with the approach to the sale of natural gas being a mix of security concerns and already existing provisions for free trade.

The EU represents a considerably more mature integration regime, but its status as an energy importer has led to a more reactive energy policy built around crisis management and maintaining current flows of natural gas. While the overall scope of the EAEUʼs integration policies seems to be less than that of the EU, the detailed implementation plan towards the creation of a single gas market likely reflects on the stability brought about by its status as an energy exporter, as well as the large economic interest in the export of natural gas.

Since the drafting of the founding treaty of the EAEU, we have seen EAEU members make progress in actualising the creation of a common gas market. Decision No. 18 of the Supreme Council of the Eurasian Economic Union entitled “On the Formation of a Natural Gas Market for the Eurasian Economic Union” (2018) elaborates on the specific steps that should be taken in the implementation of a common gas market. This includes the establishment of a common pricing and tariff regime among EAEU members by the Eurasian Economic Commission. In broader terms, Decision No. 18 requires that all EAEU members undergo legal harmonisation to ensure compatibility between national legislature on gas delivery, the creation of a separate treaty for unified gas trade with third parties outside the Union, and provisions to prevent the resale of natural gas by third-party trading partners (ibid.).

The emergence of a unified policy within the EAEU holds many potential implications for energy trade with external partners. The import of Russian gas to the EU via Belarus would no longer be a matter between the EU and two third parties, but rather a transaction between two regional blocks, each liable to their supranational terms of trade at the Belarussian-Polish border. This could be particularly difficult should the establishment of an agreement on external trade of natural gas among the EAEU members differ greatly from the EU’s current bilateral agreements with Belarus and Russia. However, given the ongoing disputes between the EAEU members on what criteria will be used in the pricing of oil, it is possible that the trade of natural gas with the EU will be most impacted by internal divisions.

4 Armenia as a ‘Small State’ in Eurasian Energy Policy and the ‘Kaliningrad’ of the EAEU

Although the EAEU and the EU differ in their approach towards a unified energy policy, there are certain trends that are visible in both regional blocks. Armenia’s position within the EAEU could be considered analogous to that of a ‘small stateʼ of the EU (see Mišík 2019). It is the smallest member of the EAEU with regards to population and the second smallest with regards to economy. Through trade and an extensive flow of remittances, Armenia is closely tethered to the Russian economy. However, this dynamic is far from mutual, as Armenia is the destination for only 0.33% of Russian exports and the origin for only 0.26% of Russian imports trade, suggesting that Russia would have considerably larger leverage over the Armenian economy (Observatory of Economic Complexity 2017). Of the $1.14 billion worth of exports from the Russian Federation to Armenia, petroleum gas makes up 24% of this sum (ibid.). Natural gas-fuelled thermoelectric plants generate 59% of Armenia’s electricity (IEA 2016). Beyond its use in thermal power plants, natural gas has a variety of consumer uses in the country, with almost 80% of vehicles using liquified natural gas (LNG) as fuel (EU4Energy 2018). Armenia’s natural gas market is controlled by Gazprom Armenia, a subsidiary of Gazprom Russia.

While four of the EAEU members form a continuous, single geographic space, Armenia is separated from the other members of the organisation. Georgia lays between Armenia and Russia, the nearest EAEU member. Armenia’s eastern border is closed due to the conflict with the neighbouring Azerbaijan over the status of the territory of Nagorno-Karabakh. Known as the Nagorno-Karabakh War, this unresolved dispute began in 1988 and is considered to be a frozen conflict. In 1993, Turkey enacted an economic blockade of its border with Armenia as a symbol of solidarity with Azerbaijan. This led to the closure of Armenia’s western border with Turkey. This leaves two viable borders for trade and the movement of persons with neighbouring countries: the small southern border with Iran and the northern border with Georgia. Georgia-Russian relations can be categorised as poor due to Georgia’s EU and NATO membership aspirations and the 2008 Russo-Georgian War. This has complicated Armenia’s relationship with both countries, as conflict between Moscow and Tbilisi has impacted trade flows in the Armenian economy (Nichol 2014), while some perceive Armenia’s relationship with Georgia as a potential part of a wider fault line between Russia and the West (Shirinyan 2019).

With regards to energy transit, Armenia is largely dependent on the continual flow of natural gas from Russia through Georgia via the Tbilisi-Mozdok Pipeline and the North Caucasus Pipeline. The dynamics of natural gas delivery from Armenia to Russia via Georgia is similar to the delivery of natural gas from Russia to the exclave of Kaliningrad via Lithuania. Similar to how Russia is dependent on Lithuania for energy delivery to Kaliningrad through legacy Soviet infrastructure, Russia uses the Mozdok-Tbilisi Pipeline to deliver most of its gas to Armenia via Georgia (Badalyan 2011).

What sets these two cases apart, however, is the way in which both states’ bilateral relationship with Russia impacted their associated costs of dependency on Russian energy. Although this relationship featured a high amount of political risk, the usage of legacy infrastructure from the Soviet Union provided a low cost of operation for Lithuania, and many of the smaller states of Central and Eastern Europe (Mišík and Prachárová 2016). While Lithuania’s membership in the EU and NATO was a source of friction with Russia, these organisations also provided a guarantee of security that dissuaded any major escalations between the two countries. Kaliningrad’s dependency on the transfer of natural gas via Lithuania was also an assurance that shut-offs and other coercive tactics directed at Lithuania would be unlikely, as it would impact the flow of natural gas to an exclave of the Russian Federation. This arrangement proved adequate for both Lithuania and Russia, and it was not until the aftermath of the 2014 annexation of Crimea and the subsequent War in Donbass that Lithuania pushed for the construction of an LNG terminal in the Baltic Sea as an alternative source of energy (Mišík 2016).

In comparison to Lithuania, Georgia’s role as a transit partner was not nearly as stable. While Soviet infrastructure was available for the delivery of natural gas, pipelines in the North Caucasus and Georgia were popular targets for sabotage by terrorists or sappers, often intent on disrupting the flow of natural gas to Armenia during the Karabakh War (Baker 1996). Additionally, Russia’s support of Abkhazian and South Ossetian militants during the Georgian Civil War and later Russo-Georgian War (2008) put a strain on relations between Tbilisi and Moscow. This relationship extends beyond the idea of ‘political riskʼ and could be considered openly hostile, particularly after Georgia’s severing of diplomatic relations with Russia and formal exit from the Commonwealth of Independent States (O’Rourke 2009). Another degree of separation between Georgia and Lithuania is the viability of energy partners outside of Russia. Lithuania was a sort of ‘energy islandʼ, largely cut off from pipelines in Europe. In comparison, Georgia borders Azerbaijan, a major exporter of oil and natural gas. Georgia’s borders with Azerbaijan, Turkey, and the Black Sea shoreline opened the possibility of access to energy networks in the surrounding region.

This possibility was manifest in the creation of the Baku-Tbilisi-Ceyhan Pipeline in 2005, which allowed for the delivery of oil from Azerbaijan through an East-West pipeline network. This was accompanied by theSouth Caucasus Pipeline, a natural gas network that largely ran parallel to the Baku-Tbilisi-Ceyhan route (Southern Gas Corridor 2020). Between these two networks, Georgia was poised to potentially wean itself off its dependency on Russian gas energy imports altogether. This led to the negotiation of an agreement between Georgia and Russia, whereby 2.02 billion cubic meters of gas would be transited to Armenia over the course of two years. In exchange for delivering the gas, Georgia would be entitled to 10% of the total gas delivered over one year, and later be able to purchase gas at $185 per thousand cubic meters—below the previous market value of $215 per thousand cubic meters (Rukhadze 2017).

In an effort to ease the energy bottleneck in Georgia, Armenia turned to Iran as a partner for the import of natural gas. The Armenia-Iran gas pipeline was inaugurated in 2006 and connects Armenia to a supply of Iranian gas via Tabriz. However, while this project was an effort to diversify the import of natural gas, Armenia was still bound by its energy relationship with Russia. The creation of the pipeline was a venture between the National Iranian Oil Company and ArmRosGazprom. The ownership of ArmRosGazprom was divided among Gazprom (45%), the Armenian Ministry of Energy (45%), and the Itera Group (10%; Kramer 2016). While separate from existing natural gas projects, the project contained a major concession to Gazprom in that the diameter of the pipeline was shrunk from 1,420 to 700 mm. In addition to limiting the total flow of natural gas, this new diameter prevents the potential future routing of Iranian gas to Europe (Socor 2007). By 2014, ArmRosGazprom had fallen under the complete ownership of Gazprom and transitioned to Gazprom Armenia. Although originating from a separate partner, Iranian natural gas would be subject to the same pricing and tariffs as gas from Georgia, due to Gazprom’s ownership of its delivery infrastructure. Additionally, the ownership of the pipeline by Gazprom means that Armenia would be unable to individually negotiate a tariff with Iran, as it would be dependent on final approval by Gazprom.

While Armenia’s interactions with Russia in the field of natural gas delivery would suggest that there is little to be gained, there is one major advantage that membership in the EAEU grants. Given the emphasis on the role of the Eurasian Economic Commission and Supreme Council of the Eurasian Union in the establishment of a common market and common pricing regime for natural gas, it would be difficult for the Russian Federation to unilaterally threaten to shut off and disrupt gas delivery to specific members of the Union. Additionally, the establishment of a common gas tariff would prevent any predatory pricing manoeuvres, albeit at the cost of potentially undoing favourable tariffs. This has led to a series of contentious negotiations between Russia and other EAEU members on the tariff policy for natural gas, including a lack of effective tax and budgeting legislation which may be considered one of the first major hurdles to the development of a common gas market (TASS 2020). Although the Russian Federation still exerts a disproportionately large amount of influence and power in the EAEU, smaller states like Armenia can use the organisation as a means of containing Moscow in a rules-based order.

5 Conclusion

When we consider the ongoing struggle to develop a cohesive and comprehensive energy policy in the EU, the provisions to establish a common market for natural gas, petrol, and electricity in the founding treaty of the EAEU may signify an evolution in regional integration processes. Rather than approach energy trade as just another aspect of economic integration or a process that can be achieved through ad hoc policy planning, we now see a contemporary integration project that includes energy integration and common energy markets as a founding principle. While this was largely due to pre-existing infrastructure between the EAEU members and a surplus of energy, this aspect of Eurasian integration is heavily dependent on the Russian Federation abiding by a rules-based order and, in doing so, conceding its flexibility in setting gas prices and its ability to unilaterally affect the flow of natural gas. With this, Moscow has forfeited one of its major tools of enacting pressure on the near abroad. However, through the process of energy integration and the creation of a single gas market, Russia has effectively secured the territories of Belarus, Kyrgyzstan, and Kazakhstan to act as conduits for natural gas exports to partners such as the EU. By preventing the EAEU members from unilaterally entering into agreements related to energy trade with third parties, Russia has also solidified its role as an energy provider among the members of the Union. These factors imply that Russia placed a high degree of trust in the process of Eurasian integration as a means of securing influence in the near abroad—especially when smaller EAEU members such as Kyrgyzstan and Armenia hold equal say in the development of policies.

However, for Armenia, membership in the EAEU has not necessarily led to a greater sense of energy security, since energy imports must be delivered through a transit country that is increasingly at odds with the Russian Federation. If anything, participation in the EAEU may be interpreted as an alignment towards Russian interests and a limit on Armenia’s engagement with Georgia. When considering the potential political limitation of southbound gas delivery through Georgia and the flow limitations placed on the northbound pipeline from Iran, Eurasian integration may have provided Armenia with a greater sense of energy insecurity. For the field of energy humanities, this ongoing process shows how access to energy may transform from being a tool for enacting pressuring on small states to achieve small policy goals to a crucial element of regional integration.