Russia undeniably wields some degree of influence over Central and Eastern Europe due to the high volume of energy exports it sends their way. However, that leverage may be overplayed. The Cipher Brief spoke with Balázs Jarábik, a nonresident scholar in the Russia and Eurasia Program at the Carnegie Endowment for International Peace, to ask just how forceful Russia’s energy hand is in Central and Eastern Europe.
The Cipher Brief: What is the extent of Russia’s influence on Central Europe as a result of its current dominance in the energy sector?
Balázs Jarábik: The Visegrad countries – Czech Republic, Hungary, Poland, and Slovakia – have since the 2009 winter gas crisis (when Russian gas to Ukraine was halted due to a financial dispute, completely cutting off supplies to southeastern Europe) undertaken considerable efforts to decrease dependence on Russia for gas imports. This was made possible due to investment in pipeline infrastructure, and now major pipelines are able to import gas from both Western Europe and Russia (the so-called reverse flow). Infrastructure connection between Central European countries has improved, gas storage capacity has increased, and Poland put the Świnoujście liquefied natural gas (LNG) terminal into operation. Energy efficiency measures and renewable energy investments are also helping to decrease consumption.
Visegrad countries’ use of oil in the heating and industrial sectors has also dropped, yet it has increased in the transport sector. The crude is bought on competitive global markets, thus Russia’s ability to directly influence this is limited.
Russian influence in the nuclear sector is considerable: Russian companies (Skoda JS, Atomstroyexport) are participating in the construction of two new units at Mochovce nuclear power plant in Slovakia, while Hungary has received a EUR 10 billion credit line from Russian banks to construct a new unit at Paks plant. Rosatom, Russia’s state-owned nuclear energy corporation, has participated in the tender for the construction of the Czech Temelin plant.
TCB: Has the drop in the price of oil had any effect on Russian leverage?
BJ: Visegrad countries that have long-term gas import agreements with Russia’s Gazprom are more exposed to possible pressure. However, since the drop in oil prices, Gazprom has been more flexible in commercial terms with gas deals (gas prices are increasingly linked to spot market prices). The drop in oil prices has also had a positive effect on the current account balances of these countries, which have improved because gas and oil imports constitute a considerable part of overall imports.
TCB: What does any Russian energy leverage over Central Europe allow it to achieve politically?
BJ: Gas is no longer leverage like it used to be. Gazprom has been forced to adapt to the global gas market reality as the European Union (EU) market, due to widening of gas sources and technology (LNG), has increasingly become a consumer rather than a producer market. The spot market price, rather than the long-term contract price that Russia prefers, has become the benchmark.
At the same time, Slovakia, Poland, and to a lesser extent Hungary (because of its smaller capacity) are interested in maintaining their position as transit countries for Russian gas, which Moscow can possibly use to lobby its key gas projects (Nord Stream and South Stream). Some influence can be exerted through activities in the nuclear sector as well.
Academic research in 2015 concluded that Russian state-owned energy enterprise behavior in the Visegrad countries mostly follows economic, rather than political, interests. It is nevertheless worth remembering that in Central Europe, politics and business are more intertwined than in the West. The level of corruption at state institutions across the Visegrad is certainly a strong (potential) enabler of Russian interests.
TCB: How does the Paks II nuclear power plant deal for Hungary align, or misalign, with Russia’s use of energy diplomacy to wield influence in the region?
BJ: The Paks II deal will increase the presence of Russian mostly state capital in Hungary. However, Hungarian Prime Minister Viktor Orban is keen to remain autonomous. The implementation of the Paks II project will be a complicated process in which the European Commission – with its state aid rules – will play a significant role.
TCB: Recently, representatives of the Visegrad Group (V4) petitioned U.S. Congress to allow shipments of LNG to Visegrad countries. Has there been a Russian response to this, and if so, what is it?
BJ: There has been no visible Russian response to this. In general, Central and Eastern European countries are already able to import LNG from sources other than Russia, although with higher costs. Still, most of the gas traded in the region (through Baumgarten hub in Vienna) is of Russian origin. The market liquidity is quite low, compared to Western Europe, and the majority of gas imports are based on long-term contracts.
The V4 countries call for the US to liberalize its LNG export policy was a political gesture. It should be remembered that this issue features also in the Transatlantic Trade and Investment Partnership (TTIP) negotiations, so the V4 is not alone in its call. The general wisdom up until now has been that America’s LNG exports are mainly going to Asia since the price there is higher. However, the situation has changed recently. Today, the European gas spot market price is actually higher than the Asian price. This might put pressure on Gazprom to consider additional price cuts in its exports to Europe.
TCB: What other factors are in play that could influence Russia’s leverage over the V4?
BJ: The conduct of the West itself is another factor that could influence Russia’s leverage over the Visegrad Group. Since the crisis in Ukraine in 2014 and Russian aggression there, Western policymaking circles are increasingly concerned about the role Russia plays in Europe. Ukraine and its European allies have been trying to mobilize the West, emphasizing the aggressive intention of Russia and the impact of Russian propaganda, but these attempts are often polarizing.
Some of the Central European leaders have been making controversial statements in support of Russia – this includes Czech President Milos Zeman, Slovak Prime Minister Robert Fico, and Hungarian Prime Minister Viktor Orban – which fuels the perception that Russia may be behind such. However, these statements were more likely attempts to be seen as independent from unpopular EU policies (for example in case of migration), rather than switching sides. No Central European government has taken actual steps to reverse Russian sanctions, for example. Accusations of being pro-Russian are a sign of growing polarization in the West and may cause more trouble within the EU and move attention away from the actual internal challenges of the EU. Overplaying the influence of Russia in Central Europe (and elsewhere) may play into the hands of the Russian propagandists.
