Why Russia's Economic Leverage is Declining
by Chris Miller, for The German Marshall Fund
Despite the Kremlin’s desire to reassert influence over its neighbors, Russia’s economic leverage in Eastern Europe is declining. After more than a decade of using trade and energy cutoffs to pressure its neighbors to accept its political aims, the Kremlin’s tools of economic coercion are losing their effectiveness.
On the energy front, two factors are limiting Russia’s ability to use gas as a political bargaining chip. First, the decline in oil prices and the global glut in natural gas production has caused energy prices to fall across Europe. This weakens the appeal of Russian offers of cheaper gas in exchange for political concessions. Second, Russian threats to cut gas supply to countries such as Ukraine are far less credible today. Better EU regulation combined with new energy infrastructure, such as interconnectors and liquefied natural gas facilities, are pushing Europe toward a more liquid and transparent gas market. These changes have reduced the role politics plays in Europe’s energy sector, guaranteeing that Russia will remain a gas supplier, which Europe needs, but limiting the Kremlin’s ability to subvert market rules.
In the trade of non-energy goods, too, Russia’s ability to use threats of sanctions and boycotts against neighbors is declining. In the past, Russia imposed...