The deficiencies of Russia’s state capitalist model
Pundits have often pointed at Gazprom’s urgency to conduct essential reforms in order to sustain its competitive advantage, particularly because of rising competition in the area of shale gas, its depleting gas reserves and Europe’s growing desire to establish a competitive and integrated European gas market, thus attempting to reduce its weighty dependency on Russian gas (Locatelli, 2014:57). Moreover, the Kremlin’s support of Gazprom makes it an increasingly difficult negotiation partner, even within the framework of the Gas Advisory Council , thus aggravating energy diplomacy (Romanova, 2014:51)
Most importantly, Gazprom remains arguably Russia’s least reformed major sector and instead of diversifying its exports Russia has been sliding into a rentier model with increasing dependence on revenues from oil and gas (source). Since the US and EU have imposed sanctions on various Russian sectors and individuals, including Gazprom, for its interference in the Ukraine crisis, Russia faces major economic challenges and possibly a recession. As gas prices are internationally coupled to oil prices, the sharp drop in oil prices is likely to putt the greatest strain on Russia’s feeble economy and can adversely affect Russia’s political climate and perhaps destabilise its political system. The latter may become an even more dangerous scenario for Europe, as Russia may increasingly become unpredictable and possibly use gas or other weapons directed against European states CZARNY, Menkes, Toporowski, 2009:64) Additionally, an antitrust probe was initiated by the European Commission in 2012 and recently renewed in accusing Gazprom of abusing its key position in central and eastern Europe to interfere with competition and push up prices (source). In case it loses, Gazprom may face a fine up to $ 14 billion and hence lose its close connections to European leaders and the mighty lever of charging some …show more content…
The weakness of the liberal order lies within the assumption that actors in the global market are purely motivated by economic rather than political objectives. This essay does not suggest that Russia is a unique case of “state capitalism”, but rather an example of a powerful state-owned multinational’s methods in influencing European politics. Gazprom’s strategy can be described as being founded on the premise that it runs in an oligopolistic market where its business decisions can have a significant impact on market structure and pricing, thus affecting the whole of Europe. Therefore, by using its energy lever through its state-owned multinational Gazprom, Russia spotted and decided to exploit a political vacuum that was available in the global system. Hence, Russia has refused to surrender to the open market model and globalising trends where it would have had to reform its system and economy. It has simply preferred to establish a dominant regional zone in its neighbourhood, possibly in order to balance US-centricism and to establish a multi-polar global system. However, the analysis has shown that Russia’s state capitalism has major institutional deficiencies coupled with its vulnerability, which primarily result from deeper economic interdependence as well as Russia’s exposure to sanctions and the oil price. However, Russia’s temporary economic weakness does not mean that globalisation does not need a more strategic approach to economic integration and international order. On the contrary, as states are becoming increasingly competitive and volatile, more sophisticated and immediate measures are needed in order to protect weaker states from the aggression of sovereign economic actors, which have been strengthened by the globalised
Pundits have often pointed at Gazprom’s urgency to conduct essential reforms in order to sustain its competitive advantage, particularly because of rising competition in the area of shale gas, its depleting gas reserves and Europe’s growing desire to establish a competitive and integrated European gas market, thus attempting to reduce its weighty dependency on Russian gas (Locatelli, 2014:57). Moreover, the Kremlin’s support of Gazprom makes it an increasingly difficult negotiation partner, even within the framework of the Gas Advisory Council , thus aggravating energy diplomacy (Romanova, 2014:51)
Most importantly, Gazprom remains arguably Russia’s least reformed major sector and instead of diversifying its exports Russia has been sliding into a rentier model with increasing dependence on revenues from oil and gas (source). Since the US and EU have imposed sanctions on various Russian sectors and individuals, including Gazprom, for its interference in the Ukraine crisis, Russia faces major economic challenges and possibly a recession. As gas prices are internationally coupled to oil prices, the sharp drop in oil prices is likely to putt the greatest strain on Russia’s feeble economy and can adversely affect Russia’s political climate and perhaps destabilise its political system. The latter may become an even more dangerous scenario for Europe, as Russia may increasingly become unpredictable and possibly use gas or other weapons directed against European states CZARNY, Menkes, Toporowski, 2009:64) Additionally, an antitrust probe was initiated by the European Commission in 2012 and recently renewed in accusing Gazprom of abusing its key position in central and eastern Europe to interfere with competition and push up prices (source). In case it loses, Gazprom may face a fine up to $ 14 billion and hence lose its close connections to European leaders and the mighty lever of charging some …show more content…
The weakness of the liberal order lies within the assumption that actors in the global market are purely motivated by economic rather than political objectives. This essay does not suggest that Russia is a unique case of “state capitalism”, but rather an example of a powerful state-owned multinational’s methods in influencing European politics. Gazprom’s strategy can be described as being founded on the premise that it runs in an oligopolistic market where its business decisions can have a significant impact on market structure and pricing, thus affecting the whole of Europe. Therefore, by using its energy lever through its state-owned multinational Gazprom, Russia spotted and decided to exploit a political vacuum that was available in the global system. Hence, Russia has refused to surrender to the open market model and globalising trends where it would have had to reform its system and economy. It has simply preferred to establish a dominant regional zone in its neighbourhood, possibly in order to balance US-centricism and to establish a multi-polar global system. However, the analysis has shown that Russia’s state capitalism has major institutional deficiencies coupled with its vulnerability, which primarily result from deeper economic interdependence as well as Russia’s exposure to sanctions and the oil price. However, Russia’s temporary economic weakness does not mean that globalisation does not need a more strategic approach to economic integration and international order. On the contrary, as states are becoming increasingly competitive and volatile, more sophisticated and immediate measures are needed in order to protect weaker states from the aggression of sovereign economic actors, which have been strengthened by the globalised