Putin’s war on Ukraine deepens doubts over the Eurasian Economic Union

A bloc supposed to promote free trade between former Soviet states is best known for what happened to the country that would not join, and now has new problems to confront

Alex William

Politics were played down when Russia brought former Soviet states into a trading bloc to counter the EU. But suspicions over deeper motives were there from the start. Sanctions are a major test.

Putin’s war on Ukraine deepens doubts over the Eurasian Economic Union

Nazareth Seferian

last update on 05 Oct 2023

Vladimir Putin was clear about the purpose of the new bloc he founded ten years ago.

As he launched the Eurasian Economic Union (EEU) in May 2014, the Russian president said: “Today, we have created a powerful, attractive centre of economic development, a big regional market that unites more than 170 million people.”

Modelled loosely on the European Union, it began in very different geopolitical times and has revealed much about how Moscow behaves toward its neighbours and what it expects of them.

Now, as the repercussions of Putin’s invasion of Ukraine ripple through the globe, Al Majalla looks at how this alliance has been affected and what the wider world can learn from the changes.

Politics played down

The EEU’s formal objective is to provide a common market for its five member states, Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia.

Like the EU, it harmonises regulations and eliminates trade barriers. To do that, it has similar institutions to the EU, including the Eurasian Economic Commission and the Court of the Eurasian Economic Union.

However, the EEU has not achieved the same level of integration as the EU. Russia remains highly dominant. Rather than developing deeper commercial relations throughout the bloc, its members have pursued more trade with Russia.

AFP — Russian President Vladimir Putin chairs a Supreme Eurasian Economic Council meeting at the Kremlin in Moscow on May 25, 2023.

When the EEU was first formed, any political elements of the alliance were played down. At the time, Bakytzhan Sagintayev, Kazakhstan's first deputy prime minister, said: “We are not creating a political organisation; we are forming a purely economic union.”

Even so, the EEU was always seen as part of Russia’s broader ambitions in the region and the world — especially over Ukraine.

Time to choose

In the late 2000s, Putin started forming a Customs Union, with Belarus, and Kazakhstan as founding members from 2010. At the time, several former Soviet states were in accession talks with the EU, including Ukraine, Georgia, and Armenia. The Russian president wanted them to see his regional economic bloc as an alternative, or a priority.

In 2013, Putin said: “We assume that if Ukraine joined the Customs Union, and we could then coordinate our joint efforts, and negotiated with the Europeans, we would have more chances of getting a better deal for trade conditions with our main partners in Europe.”

AFP — Russian President Vladimir Putin meets with participants of the Eurasian Intergovernmental Council and the Council of CIS Heads of Government meetings, in Sochi on June 9, 2023.

It put Ukraine on a political tightrope, which it tried to walk for a while.

President Viktor Yanukovich, who was pro-Russian overall, said his government would do its best to satisfy the EU’s preconditions and accession agreement while trying to “find the right model” for the Customs Union.

But in February 2013, the European Commission made it clear a choice would have to be made. Its President José Manuel Barroso said: “One country cannot be a member of a customs union and in a deep common free-trade area with the European Union at the same time.”

One country cannot be a member of a customs union and in a deep common free-trade area with the European Union at the same time

José Manuel Barroso, European Commission President

Russia offered $15bn dollars in financial aid and a 33% discount on natural gas prices to lure Ukraine away from the EU. Yanukovich stalled signing agreements with the EU to bring membership nearer for Ukraine, leading to the widespread protests that toppled him from power in 2014.

That stoked the Crimean crisis when pro-Russian separatists in Ukraine's Donbas region were supported by troops known as "little green men" who seemed to come from the Russian military.

It was widely seen in Ukraine as a political punishment for not joining what was supposed to be a purely economic bloc in the EEU.

Armenia's about-turn

Another former Soviet republic made a very different choice. Armenia turned away from four years of talks over EU membership to join Putin's Customs Union.

When the country's President Serzh Sargsyan announced this in September 2013, there was widespread surprise. The Customs Union was then restructured into what became the EEU.

Sargsyan later admitted that his decision was made in the interests of his country's security. Armenia relies heavily on Russia to maintain its borders.

Nash Weerasekera

In a meeting with people from Armenia's diaspora in Prague later in 2013, Sargsyan gave the impression that he had been strongarmed into joining the bloc, which was clearly not just being seen as an economic entity. He said he could not have consulted with everyone "overnight".

Wartime in an economic bloc

In February 2022, Russia launched a large-scale war against Ukraine.

The international community responded swiftly, and the consequences for Russia of its military misadventure have also affected the economic union it leads.

First came sanctions. Russian companies were cut off from the SWIFT international bank messaging system, essential for global financial transfers. It meant the EEU had to find other ways of trading with Russia.

Getty Images

There was also a significant outflow of capital from Russia, as major corporations and tens of thousands of skilled professionals left the country. Some relocated to other EEU nations, where it was easier to integrate and keep working.

The war's impact on the Russian economy will have ripple effects for the rest of the EEU, which is keeping watch on the data from the bloc's senior members. In 2022, Russia's economy shrank by 2.1% year-on-year, but in the second quarter of 2023, it grew by 4.9%.

The war's impact on the Russian economy will have ripple effects for the rest of the EEU, which is keeping watch on the data from the bloc's senior member.

Putin claimed in July that sustained growth of 0.5% to 0.7% per quarter would mean the economy would have recovered in size by the end of this year.

Currency crash and broader uncertainty

But Russia's rouble has weakened dramatically. A dollar cost 75 roubles in February 2022, but it had spiked past 100 roubles by early March. There was a recovery period in the second half of 2022 and early 2023, but the exchange rate is now around 96 rubles to the dollar.

The broader uncertainty created by the war has raised questions for EEU members over their trade outside the bloc. There are doubts over the long-term prospects of Kazakhstan's oil exports to Europe, which run through the Caspian pipeline to the Russian port of Novorossiysk.

BREAKING: Russian Ruble

The Ruble has fallen to near all-time lows against the U.S. Dollar pic.twitter.com/KN8nciFmRr
— Barchart (@Barchart) October 3, 2023

The war means the outlook for revenue from import duties imposed by EEU members on goods arriving from Europe will also drop, as trade levels fall. Armenia is particularly exposed, generating revenue from duties on goods coming into the bloc before moving on to Russia. With 82% of imports into the EEU ending up in Russia, these trade flows could collapse.

Uneven union

As it faces more significant uncertainty as Putin's war continues, the uneven nature of the EEU makes assessing the potential impact more difficult. Its members are acutely aware of that.

When sharing a stage with Putin, Kazakhstan's President Kassym-Jomart Tokayev drew attention to the problems over different levels of integration at the Eurasian Economic Forum in the summer.

AFP — Armenia's acting Prime Minister Nikol Pashinyan, Belarus' President Alexander Lukashenko, Russian President Vladimir Putin, Kazakh President Nursultan Nazarbayev and Kyrgyz President Sooronbay Jeenbekov.

He pointed to the deeper ties between Russia and Belarus, which he described as "two countries – one state", calling them: "A single political, legal, military, economic, monetary, cultural and humanitarian space. It is a single union government, a single union parliament… and even their nuclear weapons are now for both."

(Russia and Belarus are) a single political, legal, military, economic, monetary, cultural and humanitarian space. It is a single union government, a single union parliament… and even their nuclear weapons are now for both.

Kassym-Jomart Tokayev, Kazakhstan's President

He added: "There is a different level of integration, represented by Kazakhstan, Kyrgyzstan, and Armenia, and we need to reckon with this reality. How will we work in these conditions? This is a conceptual issue. I think we need to discuss this problem."

The Ukraine war and the sanctions on Russia that followed it will be a serious test for the EEU. Kazakhstan and Armenia have pledged to their partners in the West that they will not allow Russia to use the bloc to bypass the sanctions, at least through their economies.

Close attention is being paid around the world to what happens next. The managing editor of The Diplomat, Catherine Putz, framed a question that resonates throughout the EEU and beyond:

"If the EEU is, as some analysts over the years have suggested, the opening move in a neo-Soviet project in the mind of Putin, the current circumstances show its limitations. Can the union survive the choices made by Putin?"

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