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Europe freezes, Eurasia pivots

Behind the crisis in Ukraine lie deeper changes that are transforming the global economic and and political order, say Giovanni Bavia & Ernesto Gallo.

What is at stake in Ukraine and the Crimea, and why has Russia's reaction to events there been so powerful? The obvious answers, which refer to east-west confrontation, the European Union or "democracy", do not go very far, for they omit or underplay the more fundamental issues.  are at stake. Here are four which deserve to be considered.

Down with Eurasia

The United States and the European Union are uncomfortable with Vladimir Putin’s strategic "masterplan", namely his ambition to create a Eurasian Union. The latter's characteristics and purpose were have been outlined by Russia’s president in several speeches and articles, including an Izvestia article on 4 October 2011. Such a union, Putin wrote then, would be ‘’an effective bridge between Europe and the dynamic Asia-Pacific region”. At present there already exists a customs union between Russia, Belarus, and Kazakhstan (created in 2010), and a common economic market among the same countries (established in January 2012). Russia sees Ukraine as important in relation to this project because of its size (45 million people), its history (Kiev is the birthplace of the historic Rus’ east-Slavic state), its proximity to Russia, and its role in the transit of gas-and-oil pipelines. Without Ukraine, any Eurasian Union can be considered incomplete.

Many in the west view supporting for Ukraine and promotion of unrest there as a way to jeopardise Putin’s grand project and also to expose what they see as Russia’s imperialist attitude towards the country. As early as 2012, the then United States secretary of state Hillary Clinton dubbed the plan "a move to re-Sovietise the region". Yet she might have got it wrong, as might Zbigniew Brzezinski (himself US national-security adviser under Jimmy Carter) in his recommendation that the US should seek to fragment Russia and pit its minorities against each other (especially Muslims and Christians).

It's beyond doubt that Putin, Belarus's Alexander Lukashenko, and Kazakhstan's Nursultan Nazarbayev are authoritarian rulers, but the Eurasian Union could nonetheless represent something new. After all, countries such as Kazakhstan, Belarus, Armenia, Kyrgyzstan, and Tajikistan seem inclined to stay close to Moscow.  Even Turkey, a Nato member but a close strategic and economic partner of Moscow, has kept a very low profile in the Crimea dispute. But in the end, what is so important about the Eurasian Union?

The energy fix

Russia alone holds some 26% of the world’s proven gas reserves. If the Eurasian Union included all the former USSR countries, the figure would rise to 39%. Moreover, Russia is on good terms with Iran (18%) and apparently also with Qatar (13% of the world’s known reserves. (This raises the question of why three other Gulf states withdrew their ambassadors in Doha in March 2014, and whether there was a Russian connection). Central Asia, together with Russia, is also rich in oil, uranium, and metals. No wonder any European who looks at these data would already feel a "freeze".

If relations between Russia and the west grow even more tense, this could further boost those between Russia and the east (especially China). Russia and China might face problems of their own in co-managing central Asia, but they could also agree on an effective division of labour whereby Moscow controls the region militarily and Beijing has a large stake in investments and the purchase of Russia’s energy sources. The matter of the currency to be used in China-Russia trade deals - gold, roubles, or the rising renmimbi - would then be posed? In any case, an aggressive western strategy towards Eurasia might bring the two giants closer, with potentially devastating effects on wider energy and financial markets.

BlackRock bites

The head of the massive asset-management company BlackRock, which has more than $4 trillion dollars of assets under its wing, is Laurence D (Larry) Fink. He warned Putin on 10 March 2014 that "Russia is losing an economic war". A few days after the start of the Ukraine crisis, Russia’s capital market lost a quarter of its value. Wall Street and City bankers in London are eager to enter this market, which is highly promising to potential investment in resources and minerals yet has so far remained largely closed to them. In few weeks, BlackRock swept the Italian market and bought large shares of all its major banks (Intesa SanPaolo, Unicredit, and MPS). Germany might be next, and Russia certainly offers myriad opportunities - if it could be shorn of Putin and the infrastructure of a Eurasian Union.

The former KGB officer in the Kremlin, however, knows very well the potential risks of American economic and financial penetration. This itself is a strong motivation to look eastwards, where China continues to reform; in 2013 the yuan became the second most used currency in global trade after the dollar (and well ahead of the euro, in third place). If the project of a Brics bank becomes reality, and the foundations of an Asia-Pacific superbourse are built, then China and Russia will share a powerful financial platform. China might even enter Russia's capital markets before the US does.

The role of finance is often overlooked, but is in fact extremely important. Among the prominent supporters of Ukraine’s integration with the EU are George Soros and the Ukrainian billionaire Victor Pinchuk, who is a partner (through the foundation named after him) of Soros, the Clinton Global Initiative, the Brookings Institution, the Aspen Institute, and other well-known western organisation.

Europe's stasis

There is a strong feeling that, with or without Russian gas, the European Union's very brain is frozen. This condition has contributed to Ukraine’s crisis and now risks inflicting more damage on Europe itself. It seems hardly to make sense that Europe wishes to teach and even preach democracy abroad, when democracy in the EU is so flawed. The elections for the European parliament are taking place in May 2014, and it is highly likely that right-wing and anti-European forces will have the upper hand. In this respect it is worth recalling the words used by the influential US envoy to the EU, Victoria Nuland, in a leaked phone conversation in February 2014 with Washington's ambassador to Ukraine. Who are the ultimate losers in this Euro-Asian-American story but Ukrainian and European  citizens?

About the authors

Ernesto Gallo is a scholar of international relations. Many of his articles are published on Giovine Europa Now

Giovanni Biava is a writer on international politics whose work is frequently published by Giovine Europa Now

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Ernesto Gallo and Giovanni Biava are scholars of international relations and co-authors of many articles on the subject, many published on Giovine Europa Now


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