Russia

What will President-elect Donald Trump’s foreign policy vis-a-vis Russia look like? Similar to so many other subjects concerning the presidency of Donald Trump, details are sparse but there are already some indicators where the relationship could be heading.

The first official reaction, that came from Russian president Vladimir Putin after Trump’s surprising victory, laid out the foundation for future cooperation: “Building a constructive dialogue between Moscow and Washington—one based on principles of equality, mutual respect and a real accounting of each other's positions — is in the interest of both nations and the world.”

On the surface, this demonstrated that Russia hopes the relationship can be fundamentally reshaped. Among other things Moscow may long for recognition as an equal power. Russian President Vladimir Putin appears to see President Trump as a partner. Conversely, judging from his election rhetoric, Trump, as a transactional leader, is of the view that it will be possible to cut deals with the Russian president.  

As a result, the U.S.-Russia relationship is bound to improve in the short run should the United States accommodate Putin’s desire to be seen as an equal. It may even influence developments in Syria and help break the political and military stalemate in the country. In their first phone conversation on November 14, Trump and Putin discussed Syria and agreed to “uniting efforts in the fight with the common enemy number one – international terrorism and extremism,” according to a Kremlin statement.

Indeed, it seems that the new U.S. leadership, including the team the president has started to assemble, identifies terrorism and radical extremism as the main security threats currently facing the United States. As a result, a political compromise of some sorts on Syria paired with joint U.S. Russian effort to eradicate the Islamic State can be expected to address this priority.

U.S.-Russia frictions may arise, however, over the situation in Ukraine (and in the post-Soviet space in general). Unlike in Syria, a country outside Russia’s traditional zone of influence, Moscow claims privileged status in Ukraine underlined by red lines that no post-Soviet state should dare to cross. These red lines have become increasingly more rigid since 2008 when Russia expressed its disapproval of Georgia’s aspiration for NATO membership and subsequently engaged it in a military conflict.

In 2014, Russia stepped up its demands on former satellite states. Since then it not only views NATO accession as a firm red line, but it would also not tolerate any cozying up towards the European Union or the West in general. Moscow gives the impression that the declaration of neutrality or non-alignment would not be sufficient reassurance for smaller post-Soviet states any longer. These demands, if not met, would deprive those states of a large portion of their sovereignty.

President Trump will have a choice to either accept or reject Russia’s zone of influence. If, despite the many shortcomings that Kiev continues to present, Ukraine is “sold out” to Moscow, doubts about the upcoming administration will arise in many European capitals. It will raise the question whether the United States should contribute to the re-division of Europe into two distinct zones of influence: that of an “enlarged” west and a “reduced” east with some countries still dithering in-between.

Ukraine will not accept any agreements without U.S. guarantees. If none will be forthcoming, it is difficult, for example, to imagine that Kiev would accept the decentralization of power in Ukraine and provide a special status to the Donetsk and Luhansk areas under the Trump administration when it did not agree to it during Obama’s terms in office.

The President-elect will have to take into account that nobody in Washington’s foreign policy and security establishment will recommend weakening the Transatlantic link and provide further reason for the Europeans to doubt the credibility of NATO and U.S. security guarantees. It is apparent that the recent farewell trip of President Barack Obama to Europe aimed at reassuring the European allies that the campaign comments of Trump dismissive of NATO should not be taken literally. However, it remains to be seen how President Trump will reconcile his likely non-interference pledge in the post-Soviet space while assuring United States allies and partners in Eastern Europe.

In the end, the question will be whether a middle ground can be found between retaining U.S. leadership in the world without alienating Moscow. However, monitoring the evolution of Russia during the Putin era and its readiness to pay attention to international actors only when their messages are backed by hard power and strong commitment, it is unlikely that Trump’s policy predicated upon non-interference, will leave much room for the United States to press its interests with a Putin-dominated Russia.

The Trump administration, touting its ostensibly-ready disposition to compromise and nativist regard may also feed into populist sentiments in Eastern and Central Europe, where populists such as Viktor Orbán in Hungary, Beata Szydlo and Jaroslaw Kaczinsky in Poland try to cling to power and could see Trump’s likely non-interference doctrine in the post-Soviet space as a justification to model their politics on Vladimir Putin’s autocratic style.

The short honeymoon between Trump and Putin may well be followed by a long and difficult marriage. The problem may stem from the fact that some passing pronouncements of Donald Trump during the election campaign will be difficult to harmonize with the incoming Republican administration’s declaratory, value-based policy and interventionist instincts including in the post-Soviet space. This uncertainty in Washington will only add to the unpredictability and volatility in U.S.-Russian relations over the long-term.

Pal Dunay is Professor of NATO and European Security Issues at the George C. Marshall European Center for Security Studies in Garmisch-Partenkirchen, Germany. The views expressed in this article are his own.

The views expressed in this post reflect those of the author and not that of the EastWest Institute.​

On October 11, the EastWest Institute (EWI) and the Russian International Affairs Council (RIAC) organized an international Seminar titled “Cooperation on Countering Cyber Crime and Protecting Critical Infrastructure.” This was the second in a planned series of seminars.

 Ambassador Cameron Munter, CEO & President of the EastWest Institute, and Igor Ivanov, RIAC President and the former Minister of Foreign Affairs of Russia, delivered the opening remarks. Bruce McConnell, Global Vice President and head of the EastWest Institute’s Cooperation in Cyberspace Initiative served as moderator. 

The first session of the seminar focused on cooperation in cyber crime prevention and counterterrorism measures. While emphasis was placed on the critical issue of a lack of mutual trust, participants underlined positive trends in U.S.-Russia relations concerning cybersecurity despite the current challenging atmosphere and tested bilateral relations. Participants agreed that areas in which both countries have collaborated successfully in addressing cyber crime should be promoted more widely, so as to affirm and drive momentum for additional subjects where U.S. and Russia cooperation may prove effective.
 
The second session was about cybersecurity norms and protection of critical infrastructure from cyber attacks. The reality remains that stakeholders often do not fully recognize the dangers to critical infrastructure inherent in the cyber sphere. Here, the experts confirmed that both nations have a common initiative and should pave the way for increasing levels of cooperation that will benefit relations, improve mutual trust and set the precedent for future generations.

On October 13, Bruce McConnell, EWI's global vice president, and Vladimir Ivanov, director of EWI’s Moscow Centre, took part in CyberCrimeCon, in Moscow. This is an international public event organized by the company Group-IB devoted to addressing high-tech cyber attacks. The conference brought together approximately 1,000 business leaders, experts and law enforcement officials, including numerous national and international representatives.
 
McConnell, who heads up EWI’s Cooperation in Cyberspace Initiative, presented his views on a panel about human factors in cybersecurity. He emphasized protecting against internal threats to an organization or corporation, recommending vigilance in observing unusual electronic and personal behavior and activities in the workplace. As a general practice, he commented on the value of ensuring task diversity among staff and avoiding unnecessary access to data by employees. McConnell also reminded audiences about the “two-man rule”—a commonly adopted control mechanism to help enhance the security of critical materials or operations.

Click here for more information about the event.

As part of his recent visit to Moscow and engagement with leading thinkers on key issues that can help re-build trust and cooperation between Russia, United States and its European partners, Dr. William Parker, COO of the EastWest Institute, was interviewed by Sputnik Radio. Here, Dr. Parker shared his insights on areas where the United States and Russia, building on mutual interest, can find additional scope for cooperation, in particular in the fight against ISIS.

Click here to listen to the complete interview. 

On March 3, 2016, Ivanov participated in a discussion hosted by the radio that also featured other guests including political commentator Chris Shipler, Doha-based current affairs analyst Ashraf Siddiqui and Moscow-based scholar Anton Zyukov.

Ivanov, who has a PhD in History from the Moscow State Institute of International Relations (MGIMO), discussed at length issues such as the Super Tuesday results as part of the current U.S. presidential election season, the newest revelations about infamous al-Qaeda leader Osama bin Laden, and the latest conflict in Libya. Ivanov said the discussion was "constructive and friendly."

To listen to three segments of the discussion on those topics respectively, click here, here, and here. The discussion was in English.

On February 18, 2016, the Russian International Affairs Council (RIAC) held a meeting of experts with Dr. William J. Parker III, Chief Operating Officer at the EastWest Institute. Dr. Parker is a retired senior naval officer, author of numerous publications on the problems of Islamic extremism in the Middle East, and worked for US diplomatic missions in Iraq, Afghanistan and Pakistan.

The discussion covered the issues of building trust between Russia and the United States as the countries with the greatest potential to successfully confront international challenges, namely the growth of drug trafficking (especially heroin black trading), the spread of weapons of mass destruction, of chemical and biological weapons, and their falling into the hands of terrorist groups. The participants of the meeting emphasized the need to establish a high level bilateral dialogue between Russia and the United States on cooperation in cyberspace. The experts also discussed the future US strategy in Afghanistan and Central Asia after the presidential election in 2016.

Experts who took part in the meeting on the invitation of RIAC and the EastWest Institute included: Ambassador Extraordinary and Plenipotentiary of Russia Mikhail Konarovsky; Senior Research Fellow at the Institute for Information Security Issues of M.V. Lomonosov Moscow State University Andrey Kulpin; Senior Lecturer at MGIMO-University Mikhail Troitsky; RIAC expert Yuri Barmin; Director of Analytical Center at MGIMO-University Andrey Kazantsev; Director of Moscow Center of EastWest Institute Vladimir Ivanov, and others.

The Russian International Affairs Council was represented by Program Director Ivan Timofeev and RIAC Website Editor Maria Gurova.

Given the results of the meeting, it was noted that this format of expert discussions promoted normalization of relations between Russia and the United States at the expert level, and it was decided to continue discussions between RIAC-EastWest Institute expert groups in the future.

To read this summary on Russian International Affairs Council's website, click here. 

Roughly ten years ago Russia began reconsidering its energy transit policy. The Commonwealth of Independent States (CIS) summit in Kazan, Russia, in 2005 was an important turning point. An important policy shift — known as the “strategy of transit avoidance” — was implemented in order to directly link Russian oil and gas resources to Moscow’s major clients in Europe, bypassing potentially unstable transit countries in the former Soviet space.

In this context, a reduction in the natural gas transit via Ukraine became an issue of strategic importance for both the Kremlin and Gazprom, which consider Ukraine’s gas transmission system the weakest link in Russia’s gas supply chain. Naftogaz’s recent decision to breach its transit contract with Gazprom and to impose a 50 percent increase in transit fees for exporting Russian gas across its territory to Europe seems to confirm Gazprom’s suspicions. It undoubtedly further increases Moscow’s desire to build the Nord Stream 2 gas pipeline in order to circumvent Ukraine.

The decision to put the Turkish Stream gas pipeline on hold announced in early December 2015 further increases the strategic importance of Nord Stream 2 as the only new natural gas route circumventing Ukraine and shifting the transit fees into construction of the Nord Stream 2.

Should a new transit fee ($4.5/1000 cubic metres (cm)/100 km) be implemented by Naftogaz, Gazprom will have to pay over $50 per 1000 cm for the transit of its gas via Ukraine. The re-direction of these volumes to the Nord Stream 2, will allow Gazprom to save up to $2.75 billion per year in transit fees. From the CAPEX point of view, the Nord Stream 2 pipeline is an expensive undertaking, but the project’s OPEX will not be so high: the main compressor station in Russia can be fueled by cheap gas supplied at domestic prices.

Quite expensive

Apart from saving on (excessively) high transit fees, there is an additional economic rationale justifying investment in this otherwise quite expensive transportation project. Most of domestic gas supplies in the EU originate from the rapidly depleting fields situated in the United Kingdom and the Netherlands. UK gas production declined from 96.4 billion cubic metres (bcm) in 2004 to 36.6 bcm in 2014. Despite an unprecedented increase in UK natural gas production in 2015 – to an estimated 44 bcm – UK output is likely to significantly decrease in the nearest future.

During the same period, Netherlands’ gas output fell from 68.5 bcm to 55.8 bcm, mostly due to an earthquake–related production cap imposed on the Groningen gas field. Overall indigenous production in Europe (EU plus Norway) has decreased from 345.6 bcm in 2004 to estimated 258.8 bcm in 2015.

Natural gas from Nord Stream 2 could close the gap between gas supply and demand in the Northwest of Europe. Currency devaluation also had a positive impact on Gazprom’s lifting costs, thus increasing the competitiveness of Russian gas in Europe. Gazprom’s lifting cost (excluding MET) went down  from $17.7 per 1000 cm in 2014 to (estimated) $14.1 per 1000 cm in 2015.

These numbers allow Gazprom to easily compete with US Liquefied Natural Gas (LNG) supplies (expected in 2016) even with high transportation/taxation cost and at current pricing conditions in the U.S. (NYMEX at around $70–75/1000 cm and average LNG transportation costs at $35/1000 cm).

Bureaucratic hurdles

However, it must be noted that all is not so rosy for this trans-Baltic undersea pipeline. Economic crisis and low energy prices affect Gazprom and other consortium members’ ability to finance the construction of Nord Stream 2. Furthermore, economic sanctions imposed by the EU and the US on Moscow – although not directly aimed at Nord Stream 2 – affect the pipeline’s ability to raise long-term financing through debt capital markets, while funds are also becoming scarce in Russia.

In addition, the project might face a number of bureaucratic hurdles linked with its (in)compatibility with the EU 3rd Energy Package, while a number of new EU Member States have called upon Brussels to take action to ban the pipeline altogether.

In his article “Why Nordstream 2 risks failure”, published on Energy Post in December, Alan Riley mentions the fact that EU energy law might be also applied to the Baltic’s seabed. Professor Riley mentions the fact that the “European Court of Justice in Commission v. United Kingdom (case)  in discussing the application of the EU Habitats Directive, was clear that EU law applied with respect to territorial seas.”

Gazprom already faces similar problems with the full unrestricted access to the OPAL gas pipeline in Germany and the company is likely to face similar difficulties with both onshore and offshore segments of Nord Stream 2. Should this option become reality, Nord Stream 2 will be forced to keep 50% of its capacity reserved for non-Gazprom suppliers both in submarine offshore and onshore pipelines. Needless to say this will seriously undermine the commercial viability of the new pipeline.

Elegant solution

An elegant solution to this problem is one that requires less time and work than trying to get an exemption from the existing EU energy rules. Russia has already liberalized its LNG exports and no one prevents Moscow from allowing Russian independent gas producers to book 50% of the Nord Stream-2 transportation capacity.

Such a decision might become a win-win situation to all parties concerned: the project will be fully compatible with the EU Law; Gazprom will have its guaranteed share of gas supplies (minimum 27.5 bcm) and could also share the pipeline construction bill with Russian independent gas suppliers; the participation of non-Gazprom suppliers will allow Russia to export more Russian gas to Europe and consequently increase the Government’s revenues.

Last but not least: export liberalisation for Nord Stream 2 may also allow foreign buyers to purchase some volumes on Russia’s largest commodity exchange SPIMEX (St. Petersburg International Mercantile Exchange).  SPIMEX launched its first trading in natural gas in October 2014. Despite relatively small volumes – 8.2 bcm between Oct. 2014 and Dec. 2015 – SPIMEX already offers month- and day-ahead physical trading and plans to launch forward (for 2-6 month period) and futures (2-72 month period) trading in 2017-18. Thus by 2020, SPIMEX will transform itself into an important trading hub offering a fair price-setting mechanism for natural gas both in Europe and Russia.

Could this usher in the end of the endless discussion on the pricing of Russian gas?

To read this article on Energy Post, click here.