European Energy Grip Loosening
BMI View: Russia's economic and political influence in Europe is in decline as its grip on Europe's energy markets diminishes. While the country will remain a major supplier of European energy for the foreseeable future, its footprint in the region is being undermined by tighter EU legislation and energy diversification, both of which have been largely driven by a desire to reduce dependence on Russian energy.
Russia's attempts to exert political influence over emerging Europe via its energy policy is backfiring, encouraging many of its eastern neighbours to speed up energy diversification, while also driving some to bolster ties with the European Union. The most recent example of this trend is Ukraine, where the traditionally pro-Russian Party of the Regions looks set to sign an Association Agreement and a Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU in November.
The former Soviet state, which remains almost entirely dependent on Russia for its energy requirements, will likely be joined in November by two other former Soviet states, Moldova and Georgia (although Georgia will only sign the DCFTA in November, with an Association Agreement likely to follow next year). We believe such moves have been prompted by Russia's persistent use of its position as a major energy supplier to exert a political influence over these states, and the threat of trade restrictions by Moscow in what looks like retaliation for closer ties with the EU reinforces this view.
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