Russia’s European Energy Grip Loosening

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Business Monitor release article on the decline of Russia's economic and political influence in Europe as its grip on the energy markets diminishes.

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The changing nature of the global energy market means that energy diversification for many emerging European countries is now a realistic goal.

Business Monitor has just released its latest views on Russia’s political and economic position in Europe as its grip on European energy markets diminish, in their new article ‘European Energy Grip Loosening.’

While the country will remain a major supplier of European energy for the foreseeable future, its footprint in the region is being undermined by tighter EU legislation and energy diversification, both of which have been largely driven by a desire to reduce dependence on Russian energy.

Russia's attempts to exert political influence over emerging Europe via its energy policy is backfiring, encouraging many of its eastern neighbours to speed up energy diversification, while also driving some to bolster ties with the European Union. The most recent example of this trend is Ukraine, where the traditionally pro-Russian Party of the Regions looks set to sign an Association Agreement and a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU in November.

The former Soviet state, which remains almost entirely dependent on Russia for its energy requirements, will likely be joined in November by two other former Soviet states, Moldova and Georgia (although Georgia will only sign the DCFTA in November, with an Association Agreement likely to follow next year). Business Monitor believe such moves have been prompted by Russia's persistent use of its position as a major energy supplier to exert a political influence over these states, and the threat of trade restrictions by Moscow in what looks like retaliation for closer ties with the EU reinforces this view.

Why Now?

The use of energy policy as a political bargaining tool by Russia is nothing new, but the changing nature of the global energy market over the last few years means that energy diversification for many emerging European countries is now a realistic (albeit still costly) goal. Some regional economies, most notably Poland and Ukraine, are already trying to replicate the success of US shale gas development, while others are seeking to benefit from the additional supply of liquefied natural gas (LNG) on global markets, which has been made available thanks to reduced demand for US gas imports and new discoveries and technological breakthroughs.

These changes are in marked contrast to Russia's energy sector, which has been slow in adapting to new technology, largely because its monopolistic grip over Europe's energy market led to policy inertia and a system of patronage that precluded innovation. Rather than invest in production, state-run gas giant Gazprom focused on expanding its network of gas pipelines, using a system of diversified and oil-linked pricing to keep margins high. Add to this the prevailing threat from Moscow that it could cut off gas supplies should its demands not be met, and many regional economies now have both the incentive and ability to diversify away from Russian energy.

To read the rest of this brand new article and to gain access to even more of Business Monitor’s expert views and analysis, please click here or contact Sarah Sutcliffe at Press(at)businessmonitor(dot)com.

Business Monitor is a leading, independent provider of proprietary data, analysis, ratings, rankings and forecasts covering 195 countries and 24 industry sectors. It offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities.

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Sarah Sutcliffe
since: 03/2009
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Business Monitor International
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