The Russian Federation and the European Union have a knotty relationship. The two make strides to cooperate with one another but due to the changing political climate of the world something always happens that ruins their relationship, Russia’s annexation of Crimea being the most recent. Russia is the largest country by size in the world and the EU has one of the largest economies. The two entities therefore depend on one another far more than people realize. Russia also has the world’s largest natural gas and one of the largest oil reserves in the world. The two resources are used for the generation of electricity, heating, cooking, and driving. This enables them to monopolize the two resources and place a figurative chokehold on the EU. The warning written on the wheel in the photograph translates to “do not close!” I thought this was pretty amusing because of the symbolism associated with it. Russia is the EU’s metaphorical lifeblood and the EU is very much dependent on Russia for its energy needs. Russia on the contrary is very dependent on the EU in order to sell its gargantuan reserves of oil and natural gas; both entities then as a result need each other in order to thrive. The shutting off of the wheel would result in the metaphorical death of the energy supply to the EU and vice versa it would be the death of the Russian economy.
Russia’s annexation of Crimea resulted in the souring of relations between the two countries. In March of 2014, Russian troops backed by pro-Russian supporters overtook the Crimean peninsula. As a result the EU (in addition to some of its other allies) imposed sanctions against Russia. The EU defines these sanctions, as “a tool to promote peace, democracy and respect for the rule of law, human rights and international law” and is part of the EU’s Common Foreign Security Policy (CFSP). These sanctions are broken down into five different parts. They include 1) diplomatic consequences, 2) the freezing of assets for individuals directly involved in the conflict, 3) travel restrictions to the Crimean peninsula, 4) banking consequences, and 5) the interruption of certain “cooperation programs”. The five consequences, when merged together, prevent EU entities from trading with the Crimea, investing in the area, or traveling to the area for tourist reasons. The part that hurts Russia so much however are these sanctions particularly affect Russia’s banks. According to the EU, the sanctions “limit access to EU capital markets for Russian state-owned financial institutions” (there are also other restrictions for the trade and export of weapons). And it is this “hurting” of Russia’s banks that lead to the collapse of the Ruble and the Russian financial crisis. In retaliation for the sanctions, Russia countered the EU by banning most food imports (meat, fish, fruits and vegetables, and dairy products) for one year starting in August of 2014. The resulting ban on food importation was a double-edged sword. It raised food prices in Russia by 20% over the course of the year but it declined agricultural sales in the EU by over 11 billion euros. Additional countries were added to the ban list in August of 2015.
Russia is the EU’s biggest neighbor by size, but the size dominance of Russia is not even the most major part. Natural gas and crude oil are Russia’s main export to the EU and gives them a significant advantage. This is mainly due to the importance and necessity of these resources. Without the oil and gas pipelines continually flowing, the EU’s lights don’t stay on and cars don’t stay on the road. In other words, Russia’s monopoly of the oil and gas market makes them the EU’s life support. In 2015 the total import of crude oil to the EU was 52,021 billion euros. That’s actually 27 billion less than 2014 and almost half as much as 2013. However this does not mean that the quantity was less. The 2015 total import by weight of crude oil was 150,942 billion kg’s (332,770 billion lbs). 2014 was 146,471 billion kg’s (322,913 billion lbs). And 2013 was 167,586 billion kg’s (369,468 billion lbs). Interestingly enough Finland is the only country in the EU that actually exported any oil to Russia but the amount was still pretty minuscule. The reason for the discrepancy between income earned and weight sold is two fold. Right around the end of 2013 the United States began producing more oil. This surplus of oil then exceeded the global need (demand) and drastically dropped oil prices (almost by half). The drop of the cost of oil coupled with the economic sanctions imposed by the EU resulted in the collapse of the Russian ruble and created the Russian economic crisis. The top importers for crude oil in the EU for 2015 are Germany, accounting for 10,116 billion Euros; The Netherlands at 8,631 billion Euros; And Poland at 7,380 billion Euros. The bottom importers in the EU are Estonia that only imported about 3 million Euros worth of oil (they actually only imported 7 thousand euros of oil in 2014 and no oil in 2013. They’re the only country in the EU to do that); Denmark at 77 million euros; and Portugal at 230 million euros. No country except for Finland exports any oil to Russia making the oil trade disproportionately one sided. Natural gas (or as the EU calls it: “Petroleum gases and other gaseous hydrocarbons”) looks a little different. By monetary value, the EU imported 12,694 billion euros worth of natural gas in 2015; 14,941 billion in 2014; and 19,058 billion in 2013. The cost to weight discrepancy is the same for natural gas as it is for crude oil. The EU imported 37,815 billion kg’s (83,370 billion lbs) of natural gas in 2015; 37,555 billion kg’s (82,794 billion lbs) in 2014; and 39,221 billion kg’s (86,467 billion lbs) in 2013. The weight was relatively consistent, but the price fluctuation was disproportionate. Another noticeable difference between the oil and gas trade is where the fuels go. The top three importers of natural gas are: Italy, which takes in 6,536 billion euros of gas; Hungary at 1,091 billion euros; and the Czech Republic at 973,691 million euros. The three lowest importers are: Denmark and Austria, which import no gas whatsoever and Malta that imports 18,551 euros. Judging by the EU statistics, it would seem that gas is a less reliable resource to trade than oil. For example in 2014, Russia actually imported a combined 4,189 million euros worth of gas from Slovakia and France as opposed to crude oil that only flows in one direction.
There are three primary natural gas pipelines that service the EU two of which terminate in Germany. 1) The “Yamal/Europe pipeline” stretches for over 1,240 miles supplying gas to Belarus, Poland and ending in Germany. The pipeline runs 33 billion cubic meters of gas a year and is owned by the Russian gas giant Gazprom. It has been operating since 1997. 2) The “Blue Stream pipeline” which stretches for 754 miles (goes through the Black Sea) and ends in Turkey. It supplies 16 billion cubic meters of gas per year and is owned and operated by three companies: Gazprom, Eni (Italian), and BOTAS (Turkish). It has been in operation since 2005. 3) The “Nord Stream pipeline” runs for 761 miles and is a direct route between Russia and Germany via the Baltic Sea. It supplies 55 billion cubic meters of gas per year (with two of its pipelines) and is operated by a company called Nord Stream AG. The parent company of Nord Stream AG however is Gazprom owning 51% and four other German subsidiaries that account for 49% ownership. The two pipelines have been in operation since 2012. There is only one major oil pipeline from Russia to the EU, but it is a major one. The “Druzhba” pipeline (meaning “friendship”) extends for over 4,000 km’s (2485 miles) and is the longest oil pipeline in the world. It has a northern route, central route, and a southern route (it branches out in Belarus). The northern route supplies oil to refineries in Latvia and Lithuania. The Central route goes through Belarus, Poland, and terminates in Germany. And the Southern route supplies Ukraine, the Czech Republic, Slovakia, Hungary, and Croatia.
The EU imports more by monetary value than it exports to Russia. Overall trade between the two countries dropped between 2013 and 2015. In 2015 the EU imported 135.7 billion euros worth of goods from Russia. In 2014 it imported 182.4 billion and in 2013 it imported 207 billion. In 2015 the EU exported to Russia 73.9 billion euros worth of goods; in 2014 103.2 billion; and in 2013 119.5 billion; making the difference -61.8 billion, -79.2 billion, and -87.5 billion euros respectively. The EU compensates for this discrepancy by exporting more in services than it does in goods. In 2014 the EU exported 29 billion euros worth of services and in 2013 it exported 31 billion. In 2014 the EU imported 12.5 billion euros worth of services and in 2013 it imported 14.2 billion euros (data for 2015 has not yet been published). The top four exported goods in 2015 from the EU to Russia were: 1) machinery and transport equipment (~49.6%) which accounted for 32,162 billion euros; 2) chemicals (~15.8%) which was 15,795 billion euros, 3) manufactured goods (~10.3%) which was 7,611 billion, and 4) agricultural products (~6.7%) which is 5,549 billion (an almost 3.5 billion euro reduction from 2014 because of the Russian food ban). The top three imported goods by the EU from Russia are: 1) Crude oil and gas that account for 76% of all imports (99,236 billion euros)! 2) Manufactured goods (6.4%) which accounts for 8,684 billion euros, and 3) chemicals at 3% which was 5,427 billion euros. What is interesting about this however is it is not an even distribution between countries in the EU. Germany for example imports the most out of this percentage whereas the UK imports the least. There is also a trade balance between the EU countries and Russia. The top three deficit countries (they import more from Russia than they export) are: 1) The Netherlands (-21 Billion Euros), 2) Poland (-13 Billion Euros), and 3) Italy (-8 Billion Euros). The top three surplus countries (they export more to Russia than they import) are 1) Denmark (+891 Million Euros), 2) Slovenia (+772 Million Euros), and 3) Latvia (+746 Million). Notice the discrepancy in balance between deficit and surplus too. The deficit countries are in the negative of billions of Euros whereas the surplus countries are only on the plus side in millions. This goes to reinforce the necessity of Russia’s supply of fossil fuels to these countries.
(TALK ABOUT THE WTO)