Kiev, UKRAINE – Following talks with Russia’s Vladimir Putin on September 3rd, Armenia’s president, Serzh Sargsyan, signaled in a surprise move that his country would join the Russian-led Eurasian customs union. This decision marks an abrupt reversal of policy that took many by surprise in Europe. Armenia’s choice, while economically of little import to either side, is of high symbolic importance in a battle of influence being waged between Russia and the European Union.
New feather in Moscow’s cap
The news of Armenia’s decision took Brussels by shock last week – Sweden’s Foreign Minister Carl Bildt referring to it as a U-turn in a tweet. The country had recently given Russia the cold shoulder, snubbing the most recent meetings of the Russian led Collective Security Treaty Organization and the Eurasian Economic Community. Before diplomats adjourned for the summer, Armenia had also finalized the sixth round of negotiations with the EU for a Deep and Comprehensive Free Trade Agreement (DCFTA). The upcoming Vilnius Eastern Partnership Summit in November was to mark the formal initiation of negotiations.
Responding to signals of rapprochement with the EU, Russia immediately made clear the consequences of disobedience. Moscow threatened to raise Armenia’s gas prices by a staggering 60%. Russia has also stepped up arms exports to neighboring Azerbaijan (US$1 billion since July), with which Armenia has had frosty relations since a territorial dispute developed into a bloody six-year war that ended in 1994 with a contentious peace. Russia is also following a similar strategy in Moldova, threatening a trade war aimed at the Moldovan wine industry, a flag-ship export for the small Eastern European economy.
Yet this belligerence is largely symbolic compared to the havoc Russia could wreak on Armenia’s small economy – the second worst in the world according to a 2011 Forbes list. Russia is Armenia’s largest trading partner and foreign investor by far, with US$1.2 in bilateral trade and US$3 billion in investments last year. Trade is also growing unabated despite the dire state of Armenia’s economy, reaching 22% last year. With such strong ties to Russia, it seems doubtful if Armenia could have truly extirpated itself from Russia’s orbit.
Ironically, it is not clear that Armenia has much to gain from joining Russia’s customs union. The country shares no land border with any of the Union’s members and its two most important neighbors, Georgia and Turkey, are both aligned with the West. Turkey is a member of NATO and has been in negotiations with the EU for well over a decade and Georgia has stylized itself as sort of Israel of the Caucasian region.
Finally, it seems doubtful that the country’s membership in the Russian led trade bloc will have much of a positive impact on the modernization of the Armenian economy. Russia’s custom union is populated with Putin’s cronies—highly corrupt economies with an addiction to energy and raw material exports. A free trade agreement with the EU, on the other hand, is painful but has the advantage of tending to induce reform. With the benefits of free trade with Europe come the barriers that must be overcome, namely tougher competition in domestic markets and higher standards for selling products in the EU. In the long run, these forces are profoundly good for economies—lean companies will survive and thrive in new markets.
The ultimate prize
For Moscow, Armenia and the smaller ex-Soviet states of the Southern Caucus and Eastern Europe regions are largely geopolitical ‘lines in the sand’. No one has any doubts about the ultimate prize for Russia: the ever-elusive Ukraine. Maintaining influence in Ukraine has always been a top foreign policy priority for Russia. Beyond the huge economic interest that this country of over 45 million represents, Russia sees Ukraine as an essential part of its own identity for complex historical reasons, meaning its Europeanization poses an existential threat.
Despite a powerful mix of both sticks and carrots, however, Ukraine has inexorably drifted towards the West since its independence. Russia’s socio-economic model and current trajectory limit its traditional soft power potential in its largest neighbor. With Ukraine, more so than with many other ex-Soviet states, Russia must heavily rely on constructing national myths and meta-narratives to bind Ukraine into a common destiny with mother Russia. Even two decades after independence, Russia possesses a formidable cultural influence in the country where practically all inhabitants are at least informally conversant in Russian.
The stakes are high for Russia as November approaches. It is hoped that Ukraine will sign both and Association Agreement and DCFTA with the EU if both sides can settle their differences. Moscow has begun to panic, alternating threats and bribes in a last-ditch attempt to woo or strong-arm the country back into its geopolitical orbit. In mid-August, Russia blocked nearly all cross-border flows from Ukraine. Sergei Glazyev, Russian President Vladimir Putin’s top trade advisor left little room for doubt, saying, “We are preparing to tighten customs procedures if Ukraine makes this suicidal step of signing the EU Association Agreement”.
Recently, however, the Kremlin seems to have shifted gears. According to the Russian paper Kommersant, Mr. Glazyey made a very explicit financial offer to Ukraine, saying the country “would benefit US$11 to US$12 billion per year in case [sic] of its participation to [sic] the Eurasian integration process”. The abolishing of customs on gas and oil, Mr. Glazyey added, would represent another US$8 billion for Ukraine as well.
Until recently, Russia was rather confident that Europe would not sign the agreement. Only slowly has is become clear that Ukraine may take the plunge, which explains the panic that has underlies Russian policy as of late. Luckily, Russia’s erratic tactics do not seem to be working, pushing Ukraine further to the West. Despite these promising developments, Europe seems to be dithering as November approaches.
Angela Merkel has been leading a small but vocal minority insisting the Ukraine take the initiative and make more and more symbolic overtures, notably the release of the former Prime Minister Ioulia Tymochenko. Chancellor Merkel is right to insist on a break with the unproductive relationship that Europe and Ukraine have led over the past decade. However, her game of chicken may only yield a hollow victory, if she’s lucky, and Europe’s insistence on Tymoshenko’s release has come at the cost of heavily watering down many of the other demands.
November should not be perceived as an absolute a deadline for Ukraine to meet all of the EUs demands. Despite an occasionally sporadic foreign policy, Ukraine has clearly set its long-term strategic objectives on the EU. This in itself should be sufficient to merit a strong overture from Europe. It would solidly anchor Ukraine in the West and provide a framework for further developing cooperation in the future. While this rapprochement would be an important strategic blow for Putin, more importantly, it represents the most viable option for meaningful reforms in a country torn between European norms and the Russian politico-economic model – strongly flavored by crony capitalism and authoritarian politics.