Putin’s Eurasian dream may soon become a nightmare

The Ukraine invasion has detrimental consequences for the Russia-led Eurasian Economic Union, a project which has been stumbling since its inception.

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Professor Rilka Dragneva

Professor of International Legal Studies, School of Law, University of Birmingham

The Eurasian Economic Union (EAEU) – consisting of Russia with Armenia, Belarus, Kazakhstan, and Kyrgyzstan – represents the culmination of Russia’s pursuit of regional integration with its post-Soviet neighbours.

Officially, the Union has an ambitious economic goal – the creation of a market based on common rules for its five member states and their 180 million citizens – and Russia likes to portray the EAEU as an Eurasian replica of the European Union (EU).

But although a common market was placed at the heart of the EAEU as a way to appeal to member states, it is of marginal importance for the Russian economy. For Moscow, the EAEU is primarily a geopolitical tool to help re-assert its regional and global role.

In a world of evermore powerful trading blocs, Moscow wants to use the EAEU to establish its own economic power base in the new polycentric world order. But Russia’s limited interest in the technocratic intricacies needed for the economic union to live up to its lofty proclamations exposes the real geopolitical ambitions.

The Kremlin has no qualms about disregarding the common rules when they clash with Russia’s own foreign policy, and it soon became evident the EAEU was a means to an end rather than an equitable institution within which Russia would accept constraints on its unilateral behaviour.

A crisis in the making

Although the EAEU has enabled some internal trade liberalization as well as the movement of people and labour to the benefit of its members reliant on labour migrant remittances, it has failed to tackle institutional barriers or promote growth and development policies.

Russia’s limited interest in the technocratic intricacies needed for the economic union to live up to its lofty proclamations exposes the real geopolitical ambitions

It has been hampered by weak common institutions and a lack of institutional capacity of its member states, while Russia’s dubious commitment is also problematic. The EAEU lacks the institutional features of a genuine common market and any attempts to address these shortcomings have been essentially empty promises.

EAEU membership does benefit the political elites of its member states, because its hub-and-spoke model relies on bilateral high-level political deals between Russia and each member state individually. And by using the enticement of security guarantees and both political and financial support, Moscow has succeeded in attracting new members to join.

But a member’s political survival – or defence against political and economic reform – is dependent on military, economic, financial, and political support from Russia. This has been evidenced by the Armenian-Azerbaijan conflict, and by Russia’s backing of the Lukashenka regime in Belarus and the Tokayev government in Kazakhstan.

The design of the EAEU ties it to Russia’s own fate, and so the impact of harsh sanctions imposed on Russia for invading Ukraine are in stark evidence across its member states. Both Kazakhstan and Kyrgyzstan are reeling from the adverse effects on their domestic currencies and remittances, and the trade bans of key commodities.

And although the ban Russia imposed on grain export to EAEU members has softened, it shows the extent to which Russia was prepared to disregard the rules and sacrifice the EAEU to rescue its own economy. Members are incurring direct economic losses from Putin’s war against Ukraine and the fluctuation of the rouble has created a major impediment to trade with Russia.

Russia seems to increasingly view the Union as a convenient tool to bypass sanctions, with massive implications for its partner countries. And the supposed advantages of EAEU membership – enhanced trade, growth, and modernization – have simply not materialized.

Due to the rapid economic decline of Russia – a fall of 10-15 per cent is anticipated for 2022 – the EAEU is even less likely to deliver the promised economic benefits, while also putting members at risk of secondary sanctions.

The Ukraine invasion has also reignited domestic sensitivities and regional tensions. In Kazakhstan, Tokayev has failed to endorse Russia’s justification for the invasion and refuses to recognize the ‘independence’ of the separatist LNR and DNR.

Russia’s invasion of Ukraine clearly reduces the benefits of Eurasian integration even further than before and imposes higher cost on the partner countries than were envisaged when they joined

Meanwhile Azerbaijan has pursued territorial gains in Nagorno-Karabakh while Russia is distracted by its invasion of Ukraine, and has requested the withdrawal of Russian peacekeeping from the disputed territory.

Russia is keen for partner countries to help mitigate the economic impact of sanctions by providing alternative transit routes for imports to Russia. But the EAEU faces challenges even at its most basic level because the sharing of custom duties among member states was denominated in dollars, which Russia now wants to move away from.

No easy escape

Russia’s invasion of Ukraine clearly reduces the benefits of Eurasian integration even further than before and imposes higher cost on the partner countries than were envisaged when they joined. They have been dragged into a geopolitical calamity over which they have no control – the inability of EAEU institutions to mediate or constrain Russia’s behaviour is stark.

Putin’s Eurasian dream may soon become a nightmare 2nd part

But despite the tensions, the EAEU will endure because, although Russia’s EAEU partners will continue suffering collateral damage from Russia’s war in Ukraine, their ability to diversify risk is limited – and Moscow has indicated anything less than full support comes with significant consequences.

While the Union’s usefulness as a geopolitical tool for Russia remains clear, for its other members economic integration with Russia is risky as they are too vulnerable and dependent on Russia to escape the fallout from the Ukraine invasion. This is not what they signed up for and yet it is what they must bear.