U.S. LNG In Central and Eastern Europe – Taking Diversification Seriously

Last week President Trump met in Warsaw with Polish officials and Central and Eastern European (CEE) leaders at the Three Seas Initiative Summit. The event brought together countries from the Adriatic, Black and Baltic seas to discuss development of regional infrastructure necessary to reduce their energy dependence on Russia and ensure energy security. This happened shortly after the first cargo of U.S. LNG, carried by the 162,000 cbm-capacity “Clean Ocean, entered the Polish port of Swinoujscie. Both the U.S. and Polish governments lauded the cargo and, following the meeting with Donald Trump in Warsaw, Polish President, Andrzej Duda declared a possibility of signing a long-term agreement (LTA) for the supply of U.S. LNG into Poland.

Much of Duda’s statement is political rhetoric given that LTAs are not signed between governments. Instead these contracts are commercial decisions made by individual companies. But the strong rhetoric coming from both governments in support for U.S. LNG exports to CEE is an indicator that beyond economic aspect, this trade has strong geopolitical dimension.

Given competitiveness of Russian gas and willingness of Gazprom to defend its market, it is highly unlikely that U.S. LNG imports would grant CEE (or Europe as a whole) full and unconditional natural gas independence from Russia. However, standing ability to deliver U.S. (or other non-Russian) gas to Europe provides “credible threat” and changes the bargaining positions of all parties involved. In such scenario Russia stands to lose not as much market share as geopolitical influence that it has derived from CEE’s dependence on its gas. And while LNG exports will not give the U.S. more geopolitical power in Europe per se (given the increasingly competitive global LNG market), Russia’s loss in this regard is a strategic gain for the U.S.

But can the U.S. and CEE governments truly affect the outcome of essentially commercial transactions? Can they effectively facilitate the ‘credible threat’ of U.S. LNG exports? And if so, how?

This ability depends on several factors. These include the usual: pricing and, given competitiveness of Russian gas, the willingness of the CEE governments to support a security premium on natural gas from a non-Russian supplier. Also, policy makers should pay close attention to current policy decisions within the EU that relate to infrastructure and antitrust law, as these decisions may not only impact profitability but also feasibility of LNG imports well into the future.

Forces that Influence Europe’s Natural Gas Market

The European market, while not expected to be as robust as Asia over the coming years, will remain an important source of demand for natural gas suppliers. As reported by Eurogas, going forward Europe will need to import much more natural gas than suggested by demand growth alone (Figure 1). In addition, the region is attractive given dependability of the market and reliability of European governments and customers.

Figure 1. EU Natural Gas Demand through 2030.
Source: Eurogas, “Natural Gas Demand and Supply: Long term Outlook to 2030.”

Much of the future makeup of European natural gas supply might be determined not only by market forces but also by geopolitical considerations and European Union legal and antitrust decisions.

The two main decisions currently on the agenda that will have broad and direct consequences for LNG trade in Europe are: 1) permitting of the Nord Stream 2 pipeline to carry Russian gas under the Baltic Sea directly to Germany, and 2) antitrust decisions by the European Commission related to Gazprom abusing its monopoly position in the CEE.

European Diversification and What It Means to Different Parties

Natural gas market diversification has become a hot topic in Europe following several breaks in Russian gas deliveries between 2005 and 2009. The 2014 crisis in Ukraine and complete shut off of natural gas supply flowing from Russia added urgency to the matter. In principle, all EU members agree that diversification is needed. But there is a visible rift between how diversification efforts are envisaged by the West versus the CEE countries.

Ukraine, Poland, and the Baltics in particular are pushing for diversification away from Russia. Their efforts include a buildup of LNG infrastructure, with the already functioning LNG terminal in Lithuania and the aforementioned LNG terminal in Swinoujscie. Plans are drawn already to expand the existing terminals, and new LNG terminals are planned in Estonia. Small-scale LNG projects are also in the works in the Baltics. In addition, the region is considering facilities for regasification, storage, rebunkering, and reloading, as well as investment in rail transport to support future LNG imports.

It goes without saying that such imports will never be realized unless the price of LNG is competitive. But it is worth noting that although the price of LNG brought to Swinoujscie by U.S.-based Cheniere Energy has not been disclosed, it was lower than Russian and German EEX natural gas prices, according to the Polish trader, PGNIG.

In addition, many CEE countries may be willing to pay a certain security premium for LNG to sustain diversification efforts away from Russian natural gas. Regardless their willingness to pay such a premium rate, these countries also actively seek non-LNG market opportunities to diversify supply, including onshore projects like the Baltic pipe. This means that the ability to pay excessive prices by those countries may be moderated in the future, as the CEE gas market becomes more competitive.

The strong push toward diversification within CEE is related to two main factors. First, dependency rates on Russian natural gas have been historically very high, with some CEE countries previously entirely dependent on Russian imports (Figure 2 below). This led to uncertainty in terms of reliable gas supplies and higher prices. If non-Russian supplies of natural gas are readily available, Gazprom loses ability to charge monopoly prices. Second, there is a strong sentiment that Russia is ready and willing to use energy dependence to achieve political goals regarding its relations with CEE countries. Much of this feeling is informed by the Soviet past, but some of the uneasiness stems from more current events, including Russian invasion of Ukraine in 2014 and annexation of Crimea. Particularly, Poland and the Baltics see LNG imports as a way to dilute the Putin Regime’s economic influence over their countries and to parry Russian attempts at undermining the democratic process and social unity.

Figure 2. Europe’s Dependency on Russian Gas, 2014.
Data Source: Eurogas, Statistical Report 2015.

 

On the other hand, Western European countries are generally content with diversifying natural gas supply routes away from Ukraine that they see as a high-risk transit territory. They are less interested in diversifying supplies away from Russia and are focused rather on lowering cost than on geopolitical implications of dependence on Russian natural gas. This is related to lower dependency rates in that region (Figure 2) and to long-standing collaboration between Western Europe’s utilities and Gazprom that is seen as reliable partner and supplier. There is much less concern about possible monopolization of the European gas market by Russia and its geopolitical implications.

Nord Stream 2, EU Antitrust Decisions & “Credible Threat” of U.S. LNG Imports

Whether CEE countries will be able to achieve their goal of natural gas market diversification and whether U.S. and other LNG producers will have access to the European market will depend as much on price as on other factors. When it comes to price Russia has significant and undisputed advantage. But EU’s policy framework, infrastructure buildup and willingness of countries to support non-Russian supplies will define boundaries within which market forces operate. As such, these factors will determine whether Russian gas dominance in Europe (particularly in CEE) will be strictly commercial or whether it will continue to yield geopolitical power. Construction of Nord Stream 2 and EU antitrust decisions are currently the two decisions that will have a bearing in this regard and where government’s, and not companies, can influence the outcomes.

Nord Stream 2 (NS2) is planned to cross directly from Russia to Germany. The new pipeline is supposed to accompany the already existing Nord Stream 1, reducing the need for the Ukrainian transit route. The plan is constituent with Western Europe’s efforts to diversify natural gas routes away from the risky transit territory. CEE countries argue against the pipeline, which in their view would damage their efforts geared toward diversity of supply and reducing dependence on Russian gas. If recent research is correct, these fears may be well substantiated. The research shows that NS2 would allow Gazprom to pre-empt diversification measures by using the entire capacity of current pipeline infrastructure. With pipelines committed to Russian gas, Gazprom could deter other potential sources of supply from entering the market and keep prices in CEE countries high.

Gazprom current commitments in the Directorate-General for Competition (DG COMP) antitrust investigation may have similar consequences. Considered soft, regarding the time and scale of alleged anticompetitive practices that affected trade in the CEE, they would possibly result in eliminating competition from other sources of natural gas supply (though, as opposed to NS2 they do not seem to increase prices of natural gas in the CEE or elsewhere in Europe). And while these commitments may be changed in the course of further proceedings, a soft response from the EU indicates general tendency and provides a precedent for future decisions.

EU decisions on NS2 and antitrust will have a profound impact on creating favorable conditions for U.S. LNG in European markets and whether it will be able to provide the ‘credible threat’ to Russian natural gas dominance. Poland and the Baltics are pushing hard against NS2 in an effort to advance their diversification efforts. The U.S. government is also acutely aware of the problem and has engaged in anti-NS2 sanctions and anti-NS2 diplomacy in the region. But there is a noticeable lack of involvement from other CEE countries. Thanks to recent infrastructure and regional cooperation agreements these countries feel more secure when it comes to natural gas deliveries not realizing the potential negative effects NS2 may have, once completed.

This lack of engagement, together with Western Europe’s limited view of diversification may well be responsible for Russia regaining its position as Europe’s dominant natural gas supplier, a position that has been seemingly slipping away from Russia in recent years as LNG technology took off (Figure 3). This is critical especially now as the European Commission (EC) seeks member-state approval to negotiate with Russia on NS2 with an intent to extent at least main provisions of the EU natural gas legal framework (Third Party Access, unbundling) onto NS2.

Figure 3. Origin of Primary Energy Imports to the EU (% Non-EU Imports).
Source: Eurostat

 

Is There a Hope for U.S. LNG Exports to Europe?

The first U.S. LNG cargo to Poland is a result of a one-off transaction between Chenier and a newly established Polish trading office in London. Although it is probable that future LNG deals will be concluded later this year, the problem of the long-term profitability of U.S. exports of this commodity to the EU is still open. Governments have little say as to what contracts are signed but they have the power to affect market conditions within which companies operate. Currently, NS2 and to a smaller extent, EU antitrust decisions are factors, which governments should consider if they want to affect future access to Europe’s natural gas market.

When it comes to the U.S., its government has been active in supporting European energy diversity in many ways, including active opposition to the NS2 pipeline via unilateral U.S. sanctions against Russia and diplomatic assurances in the Baltics and Poland. But this may not be enough. There also may be a value in the U.S. focusing on issue diplomacy in those European (CEE and non-CEE) countries that are currently quiet or in support of NS2 but would ultimately lose if NS2 comes to be.

That being said any success of CEE and U.S. efforts does not guarantee unobstructed flow of U.S. (or any other) LNG to the European market. However, ability to access that market by any non-Russian supplier will provide an effective check on both, Russia’s pricing policy and the influence that country has historically derived from its monopoly over the CEE market.

This article was originally published on Forbes.com and can be viewed here.

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How Can the West Combat the Global Democratic Recession?

Earlier this month, Freedom House released its annual “Nations in Transit” (NIT) report,[1] which painted a disheartening picture for democracy in Eurasia. “Populists’ stunning electoral victories in Europe and the United States have shaken the post–Cold War order in Europe and Eurasia,” wrote the democracy watchdog in the report’s summary. The results of this research project—which focuses on democracy and the democratization of the 29 formerly communist countries that comprised the former Soviet Union and its satellite states—have been published annually since 1995. The 2017 report is grim, and the findings show that democracy continues to be on the defensive in Eurasia. According to the report’s key findings, 18 of the 29 countries experienced declines in their democracy scores, and, for the first time since 1995, there are now more Consolidated Authoritarian Regimes than Consolidated Democracies. “This is the second biggest decline in the survey’s history, almost as large as the drop following the 2008 global financial crisis,” Freedom House concluded.

Those of us who follow the work of Freedom House closely and who keep an eye on the post-communist Central and Eastern Europe and Eurasia (CEEE) region aren’t surprised by this continued regression. Two years ago, in her presentation of the NIT 2015 report, entitled “Democracy on the Defensive in Europe and Eurasia,” then-NIT project director Sylvana Habdank-Kolaczowska called this regression “demoralizing” to watch. And, continuing the trend, the 2016 NIT report was entitled “Europe and Eurasia Brace for Impact.” These reports have experienced quite the about face, especially since the days of encouraging NIT report titles, like 2005’s “Outlook for a New Democratic Spring.”

What is shocking about this year’s NIT report, and its launch event on April 4, is the fact that concerns over Western liberal democracies are now taking priority over core CEEE issues. Even at discussions that are meant to be solely dedicated to issues like Ukraine’s war with Russia, Georgia’s EU membership aspirations, or Russia’s and Azerbaijan’s complete consolidation of authoritarianism, experts cannot help but express alarm over Brexit, the upcoming French national elections, and the dangerous trends of rising populism and nationalism within the EU.

No wonder the democratic backsliding in CEEE continues, despite all the warnings from democracy watchdogs like Freedom House: Western states have been busy suffering the deterioration of their own democracies. How could they have helped to prevent the same from happening elsewhere? The current wave of democratic backsliding has moved from the East to the West, and now that it’s here, we cannot keep ignoring it.

The Foreign Policy Research Institute (FPRI) has paid particular attention to the issues of democratization for over a decade now. Through its Project on Democratic Transitions, which was launched in 2005, dozens of scholars and experts have conducted long-term research on the issues of post-authoritarian democratization and transformation in the CEEE region and beyond. One of the final products of this 12 year exercise was recently released against this grim backdrop of (now qualitatively substantiated) global democratic recession. FPRI’s new book, Does Democracy Matter? The United States and Global Democracy Support (Rowman and Littlefield, 2017), examines the available knowledge as well as new research that will help the world better understand both democratization efforts and authoritarian pushback in today’s context.

The ideas featured in this edited volume, made up of contributions by 11 democracy scholars and experts, ring true now more than ever. The volume begins by acknowledging that the West is no longer doing a good job leading the rest of the world by example. “A crisis of political polarization and governmental dysfunction in the United States and other leading democracies” is on the list of global challenges to democracy for Carl Gershman, the president of the U.S. National Endowment for Democracy. In this volume, he argues that “the United States needs to return to a policy of real engagement and get over the fear of getting bogged down in distant wars.”

One of the most eminent scholars of the study of democracy, Larry Diamond, goes even further by urging “the physician to heal himself:”

The first imperative is to address the manifest ills of our own democracy in the United States, and in other Western democracies. . . . The accelerating trend toward hyperpolarization and institutional gridlock has not only damaged our own national strength but has challenged the appeal of democracy and the credibility of the United States in promoting it. And the surge of illiberal, nativist, anti-immigrant appeals in the electoral politics of the United States, France, Hungary, Poland, Switzerland, and other European democracies has done even more damage to the image of democracy as a universalistic value.

The volume’s contributors represent widely different backgrounds and perspectives. Yet, they all agree on one major point which is eloquently captured in a question posed by Diamond:

If we do not mobilize institutional reforms and operational innovations to reduce partisan polarization, encourage moderation and compromise, energize executive functioning, and reduce the outsized influence of money and special interests in our own politics, how are we going to be effective in helping other countries to tackle these challenges?

The authors also agree that American strategic interests are better served in the long term by the spread of democracy abroad. However, they differ on the question of exactly how support for democracy should be integrated into the U.S. national security calculus and how such support should be administered.

Several authors believe that the core national security interests of the United States and of our key allies not only permit, but also very much require, continued efforts to reinforce democracy abroad. They believe that the failure to counter the serious erosion of democracy that has been evident over the past decade would be to ignore an existential threat to the liberal international order – the essential framework that has made the United States secure and prosperous over the last 70 years.  However, the contributors also see the need for a thorough review of how U.S. policies and programs in support of democracy abroad are designed and delivered. How they factor into overall U.S. global strategy and specific bilateral agendas must also be reviewed.

In the concluding chapter, Amb. Adrian Basora and Amb. Ken Yalowitz argue that while the U.S. should indeed favor the spread of democracy abroad as a general objective, factoring this goal into specific relations with individual countries must be done on a case-by-case basis. Realistically, the fostering of democracy cannot “always and everywhere” be a top short-term priority in every bilateral relationship. Thus, careful triage is needed.

In some highly authoritarian countries such as Russia, democracy-promotion initiatives can in practice prove futile or even counterproductive. In other cases, such as in hybrid or “competitive authoritarian” states, there may be opportunities to plant the seeds of eventual democratization, or even the possibility to respond actively in support of an unexpected breakthrough by reformist forces, but these countries must be dealt with cautiously and with a long-term perspective.

Thus, the challenge America faces today is daunting and can induce fear even among the most hopeful observers. Can the United States “heal” its own democracy? Can it inspire the rest of the Western liberal democracies to safeguard their own democratic institutions? Can it unite the West to lead the rest of the world by example? And can it encourage and support a renewed effort to continue the global spread of democracy? Not-so-distant history shows that the United States has overcome obstacles even more insurmountable than this current challenge. The authors of this book are convinced that the global democratic recession is a problem the United States can effectively address, and they are far from giving up on Western liberal democracy.


[1] In the map above, there are 5 regime types in Eurasia: green is Consolidated Democracy; yellow is Semi-Consolidated Democracy; orange is Transitional Government or Hybrid Regime; blue is Semi-Consolidated Authoritarian Regime; and purple is Consolidated Authoritarian Regime.

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Nagorno-Karabakh: A Conflict Entrenched in Nationalistic Propaganda

Armenia-Azerbaijan relations are all but stellar.  In fact, for those familiar with the region, this is a relationship known for its enmity, aggression, and hostility via a dangerous game of propaganda and nationalistic rhetoric. The two became enemies shortly after 1988, when the region of Nagorno-Karabakh – inhabited by a majority of ethnic Armenians – voted to secede from then Soviet Azerbaijan and unite with Armenia.

What are the implications of the tragic drifting apart of the Armenian and Azerbaijani societies caused by years of relentless nationalistic propaganda carried out by both governments? Could the arms race the countries have embarked on destabilize the entire Eurasian region if it transforms into a full-scale war? Is there a path towards reconciliation?

The Nagorno-Karabakh Conflict in Context

The bloody war in Nagorno-Karabakh that followed the dissolution of the Soviet Union ended in the loss of more than 35,000 lives. About 1.5 million people were forced into becoming refugees and internally displaced persons: Armenians living in Azerbaijan fled to Armenia, Azerbaijanis in Armenia fled to Azerbaijan, while Azerbaijanis in Nagorno-Karabakh and seven other surrounding districts were displaced to other regions of Azerbaijan because of the conflict. The conflict also caused the occupation of about 20% of Azerbaijani territory by Armenian forces (see map below). As a matter of comparison, if the United States lost 20% of its sovereign territory, the loss would be equivalent to its entire Northeast region. The 1.5 million displaced individuals represented about 15% of the combined population of Armenia and Azerbaijan in 1990 (which stood at approximately 3.4 and 6.8 million people, respectively, according to World Bank figures).

NKMap 1

A ceasefire signed in 1994 halted the combat, albeit only temporarily. To this day, the two countries continue fighting across the line of contact. And, since 2012, reports of incidents including the downing of helicopters and the use of heavy artillery in and around civilian areas have increased. There is little sign of progress in the ongoing fragile peace negotiation.

Intensified fighting has occasionally coincided with Western high official visits to the region. For instance, an episode of increased violence broke out during the visit of then Secretary of State Hilary Clinton to the South Caucasus in 2012. These flair ups also tend to coincide with high level international meetings in which both Armenia and Azerbaijan participate. This was the case with the recent Nuclear Security Summit in Washington D.C. earlier this April, at the end of which occurred the latest and most worrying escalation of the conflict since the 1994 ceasefire.

A Peculiar Conflict for Today’s World

Even today, the Nagorno-Karabakh conflict remains a war of trenches – a classical confrontation between conventional forces composed of tanks and heavy artillery. By their physical appearance the Armenian and Azerbaijani trenches of today can best be compared with the trenches of the First World War. 

800px-NKR_war

Trenches of Nagorno-Karabakh 

785px-Cheshire_Regiment_trench_Somme_1916

Trenches of WWI

What does Nagorno-Karabakh stand for? It certainly is a scenic region at the foot of the smaller Caucasus chain. Some observers might be reminded of Switzerland, or the German Black Forest when seeing pictures of it. But beyond its rugged foothills, the Nagorno-Karabakh region does not possess major natural resources and is, because of its geography, neither an essential causeway for pipelines nor any other type of strategic route. It is also a region only half the size of New Jersey, with a population of about 200,000 before the outbreak of the conflict in the late 1980s. It then was composed of about 76.9% ethnic Armenians and 21.5% ethnic Azeris. Today, its population has shrunk to around 100,000. While accurate figures are hard to obtain, the vast majority of the region’s population is Armenian.

However, Nagorno-Karabakh has great emotional value for both the Armenian and Azerbaijani national identities. The region serves as a historical center for their respective cultures, a site where both nations continuously thrived in the face of Russian, Persian, and eventually Soviet domination.

All the above renders the Nagorno-Karabakh conflict a very singular case and one of Eurasia’s worst protracted conflicts with very meager hopes for resolution at this point.

A Nationalistic War of Propaganda

Perhaps the worst outcome of this conflict is, as Thomas De Waal  wrote in the New York Times on the onset of the recent escalation, “the bitter truth that leaders in Armenia and Azerbaijan have become trapped by their own rhetoric, promising their publics total victory that can never be achieved. They have employed the status quo as a weapon to shrink hard questions about their own legitimacy or to divert people’s attention from socioeconomic problems.” 

Fighting the nationalist propaganda has been almost impossible for peace-seeking civil society organizations. In Azerbaijan, many initiatives, organizations, and individuals advocating for a peaceful settlement have recently been shamed for their reconciliation work. Peace seekers are often portrayed as enemies of the state — traitors who have betrayed their country’s values for the sake of international grants and fallen victim to Armenia’s influence.

In Armenia too, supporters of rapprochement between Armenian and Azerbaijani civil societies are rare and going against the official state position on the conflict is not well received. As Artur Sakunts, head of the non-governmental Helsinki Citizens’ Assembly in the northern Armenian town of Vanadzor described in a recent interview with Eurasianet, “the lack of direct contacts between Azerbaijani and Armenian civil society members has only added to the animosity prevalent now.”

Online social media now carry their own share in this propaganda war. Twitter and Facebook are often used as weapons of Azerbaijani and Armenian online war and propaganda campaigns: “The Armenians or Azerbaijanis who befriend one another publicly on social networking sites such as Facebook or its Russian version, Odnoklassniki.ru, are often attacked, insulted, and called traitors online by their ‘offline’ friends and peers from their own societies. Pro-democracy or pro-peace bloggers are also similarly attacked. Any public expression of alternative views, criticism of one’s own side, or simple public discussions of critical topics — all necessary components of a successful peace process and sustainable co-existence with other groups — are actively discouraged. Anything but repeating the silently agreed upon lines dictated by government propaganda becomes taboo, and progress within each society is held hostage,” wrote Philip Gamaghelyan, longtime supporter of track two diplomacy initiatives between the two countries and founder of the Imagine Center for Conflict Transformation.

Moreover, little has changed since Gamaghelyan expressed these words in 2011. Contemporarily, a dialogue is almost non-existent, appeasing discourse is heavily criticized, and younger generations have little interest in challenging the deeply embedded attitudes groomed by this nationalist rhetoric.

A Relentless Arms Race

Another profoundly worrying aspect of this conflict is the arms race between the two countries. In 2014, President Ilham Aliyev boasted about Azerbaijan’s defense budget being twice the size of Armenia’s overall state budget. This is, however, widely due to the important gap between both countries’ Gross Domestic Products. In 2014, Armenia’s GDP was $11.64 billion while oil-rich Azerbaijan’s GDP reached $75.20 billion. While oil-money does fuel Azerbaijan’s military spending, it is important to understand that it does not actually outsize Armenia’s military spending to GDP ratio.

In reality, both countries have similar military expenditures in terms of GDP. In 2015, Azerbaijan’s military expenditures represented 4.6% of the country’s GDP, while Armenia’s spending amounted for 4.5% of its GDP. Both percentages are fairly large: the same year, Germany spent 1.2% on its military and the United States 3.3% according to the Stockholm International Peace Research Institute (SIPRI).

The recent fighting in Nagorno-Karabakh has demonstrated the use of modernized warfare on both sides, particularly by the Azerbaijani military, thus increasing the chances of casualties and suggesting that both countries are eager to ensure their unequivocal military success should the war break out again.

The fact that both governments inflate military expenditures and divert resources from more fundamental societal concerns is the result of very successful propaganda machines working their way into the minds of Armenian and Azerbaijani citizens from as early as primary school – presenting the other as a major existential threat.

However, in reality, most visitors to Armenia and Azerbaijan would probably agree that these nations share much more than they are currently willing to appreciate. This is true in terms of both cultural and societal dynamics.

Moreover, rare are the places in this world where religious differences – Armenians being predominantly Christians and Azerbaijanis being Shia Muslims – matter so little, in fact, not at all. This is not a conflict based on religious differences.

This is a territorial conflict firmly rooted in the quest for national identity and international statehood recognition on both sides.

While the Armenian and Azerbaijani nations are strikingly unique, their shared traditions and legacies, shaped by centuries of multi-ethnic and multicultural dynamics in the South Caucasus, are just as striking. However, if nothing changes, it is most likely that the societies of both countries will continue to drift away from each other by continuing on the path of hatred, promotion of negative stereotypes, and engaging in an aggressive arms race.

Russian Military Presence in Armenia

Another concern that some external observers have had over time is the presence of Russian troops on Armenian territory and how this might influence the Nagorno-Karabakh conflict. This presence – composed of about 3000 soldiers, air defense missiles, and fighter jets – is part of a bilateral agreement between the two countries within the broader context of the Collective Security Treaty Organization (CSTO) of which Russia, Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Tajikistan are members.

With the Russian 102nd Military Base located in the town of Gyumri – 75 miles north of the Armenian capital, Yerevan, and close to the Turkish border which is also one of the physical border between the CSTO and NATO – the Russian Federation is supposed to provide for the security of Armenia. With regards to external borders, Russian troops, however, patrol primarily the border with Turkey and Iran but not the ones with Azerbaijan – both mainland and the exclave of Nakhichevan to Armenia’s south (see map below).  

NKMap2

But after the events of this April, Russian official reactions suggest that Russian troops would not actually decide to intervene in favor of the Armenian side, should the conflict scale-up to a fully-fledged war yet again. In fact, the latest escalation has, instead, reactivated Russia’s motivation to serve as a mediator between the two parties. In addition, other CSTO countries, such as Belarus and Kazakhstan, have distanced themselves from Armenia once the April events unfolded, while Azerbaijan’s strategic relevance for Russia has continued to grow.

Need for Political Reform, Education, and International Community Support

The resolution of the Nagorno-Karabakh conflict must start with profound political reforms towards democracy in both countries. Moreover, it must be strengthened with an actual will of elites on both sides to improve their citizens’ quality of life by making the region a secure place, free of conflict, through continued efforts towards reconciliation. Finally, a resolution of the conflict must be ensured by an effort to educate younger generations in Armenia and Azerbaijan.

In this context, the international community has a great responsibility in helping to consolidate a very fragile thread of existing peace negotiations with the distant hope that perhaps, one day, the two nations can live in peace.

On Thursday May 5, 2016, the Armenian government has approved a draft bill recognizing the independence of Nagorno-Karabakh on which the Armenian parliament will vote next week (the week of May 9th, 2016). This move from the Armenian side, will most likely trigger reactions in Azerbaijan and from the international community. This renders the outcome of this conflict – towards either peace or war – even more uncertain.

[Editor’s Note: This piece was updated after publication. The final sentence originally read: “Otherwise, clashes of this magnitude cannot only become a norm but have the potential to morph into a broader regional conflict inevitably involving Turkey and Russia as the two countries are important regional powers in close alliance with Azerbaijan and Armenia respectively.”]

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Freedom House Reports Alarming Authoritarian Pushback in Eurasia’s Nations in Transit

On June 23rd Freedom House—an independent democracy and human rights watchdog organization—released its annual Nations in Transit report. Nations in Transit (NIT) studies the state of democratization in 29 countries from Central and Eastern Europe to Central Asia. The NIT is also one of the few highly respectable and reliable quantitative measures of democracy, which for 20 years now has served as an important point of reference for scholars and organizations all over the world. FPRI’s own Project on Democratic Transitions relies heavily upon Freedom House’s NIT measurements for its research and publications.

Freedom House’s findings shed further bad news about the state of democracy in Eurasia this year. The title of the 2015 report warns that “Democracy is on the Defensive in Europe and Eurasia.” As the report’s project director Sylvana Habdank-Kolaczowska states in its executive summary:

When the first edition of NIT was published 20 years ago, only three countries—Belarus, Turkmenistan, and Uzbekistan—were considered “consolidated authoritarian regimes.” Since 2000, however, the number of such regimes has more than doubled, and Eurasia’s average democracy score has fallen from 5.4 to 6.03 on a 7-point scale.

Looking back at the post-communist world 20 years ago, it is impossible to believe that the region is more authoritarian now than it was during the era of failed states, rampant corruption, and civil wars. But while the region is better off today than it was in the 1990s, it is no secret that 20 years ago the democracy-promotion community exercised an excessive amount of wishful thinking when it dealt with the countries of post-communist Eurasia. This wishful thinking often refused to acknowledge that there was no actual “democratization” happening in some of those states, labeling them as “slow democratizers,” “would be democracies,” or “nascent democracies.” In the early 2000s, when these “slow democratizers” never democratized, the democracy-promotion community had to finally come to terms with the reality and adjust its “labeling system.” This is why Georgia, for example, practically a failed state throughout the 1990s, continued to receive the same NIT democracy scores throughout the 2000s as it did in the late 1990s, although it had become a rapid and successful reformer.

That said, even with today’s sober approach to understanding democratic transitions, the recent regression in post-communist Europe and Eurasia is obvious to people who closely examine the region. As Ms. Habdank-Kolaczowska says, “Over the last 10 years in particular, authoritarian leaders who paid lip service to democratic reform have systematized their repressive tactics and largely abandoned any pretense of inclusive politics.”

Alarming Key Findings

The key findings for this year’s NIT are alarming to say the least:

  • Russia has earned its largest ratings decline in a decade, “as the Kremlin stepped up suppression of dissent at home while seeking to destabilize the new government in Ukraine.”
  • Hungary completely fell out of the category of “consolidated democracies.” It is now considered a semi-consolidated democracy—joining EU newcomers (relative to Hungary)—Romania, Bulgaria and Croatia, to name a few, who have long belonged in this category.
  • Azerbaijan, Tajikistan, Kyrgyzstan, and Belarus continue to be in dire conditions under consolidated authoritarian rule. Azerbaijan in particular has experienced serious backsliding as the Aliyev regime has become unapologetic about punishing dissent and resorting to severe human rights abuses to avoid opposition.
  • We have also seen the fear of Russian propaganda translate into government actions limiting the voice of free media in the Baltics—previously frontrunners in securing media freedom. “Estonia, Latvia, and Lithuania struggled to come up with adequate responses to Russia’s propaganda onslaught,” resorting to unorthodox approaches to solving the problem, like banning some of the Russian propaganda TV channels.

Hard Questions, Impossible Answers 

To honor of the release of the NIT 2015, Freedom House held a panel discussion on June 23rd. The panel, moderated by NPR’s David Greene, included Will Englund (Washington Post), Tim Judah (The Economist), and Sylvana Habdank-Kolaczowska (Freedom House). Some of the major themes of the discussion included the rise of Russia as a major aggressor in the region, the strength and impact of its propaganda machine, and the decline in democracy’s popularity as people are increasingly more willing to choose stable authoritarianism over “freedom” in anarchy (as we have seen in many of the Arab uprising countries).

The conditions for democratic consolidation are less than favorable in today’s Central and Eastern Europe and Eurasia. Approximately 80 percent of Eurasia lives under some form of authoritarian rule. Russia has quickly moved away from its role as an important ally to the West and is now a dangerous aggressor. Hungary is no longer a consolidated democracy. Previously pioneers of democracy, the Visegrad Four countries (Poland, Czech Republic, Slovakia, and Hungary) are now facing major internal struggles. Euroskepticism within the EU is combined with uncertainty over economic conditions and serves to weaken the EU’s image abroad. Its decision-making mechanisms are complex and inefficient, preventing it from taking a strong stand against authoritarian pushback. To the question of what the EU can do to avoid further regression in Hungary, Ms. Habdank-Kolaczowska said that the EU’s options are limited as it does not have too many tools in-between doing nothing and resorting to expulsion. Ms. Habdank-Kolaczowska added that watching Hungary regress so quickly after so much initial democratic progress is “demoralizing”. While it had been slowly regressing for the past seven years, even five years ago no one questioned Hungary’s democratic aspirations. Today it is no longer a consolidated democracy. Moreover, its regression is showing diffusion effects on Slovakia where we may soon see the same type of regression.

The panelists added that just as alarming is the rapid regression in Azerbaijan. The regime has become more and more intolerant of criticism and impervious to international pressures. Azerbaijan enjoys the privileges of being an ally to Europe and the US. Whether it is politicians going on very expensive holidays to Baku or Lady Gaga performing at the Olympic games, the West’s actions towards Azerbaijan have only served to further legitimize the corrupt Alyev regime. For economic and strategic reasons the West is not doing much about its regression, and this is in turn leading to a dramatically negative shift in Azerbaijan. The situation is reminiscent of Kazakhstan, but the Aliyev regime in Azerbiajan has enjoyed a lot more “success” in openly practicing authoritarianism while also enjoying the West’s support.

Mr. Englund, a long-time Russia reporter, expressed concerns over Putin’s success at giving human rights a bad name. For many Russians it is a concept mostly viewed as a decadent western ideal that has nothing to do with them. The discussants also expressed their concerns over the decreasing popularity of democratic values and the growing support for authoritarianism as a means to stability. Since the dramatic failures of the Arab uprisings, the Eurasia region has seen a rise in the “fetishization” of stability, which is now a lynchpin to most authoritarian regimes. The pragmatic voters are choosing the “known evil” over the unknown one in fear of ending up in a Syria-like scenario, believing that “the alternative is worse.” In this vein, the discussants stressed the need for combating this narrative by ensuring that Ukraine’s transition becomes a successful one. If the West is to support Ukraine’s democratization, its economic stability and territorial integrity, the results will speak for themselves; this will be an outcome more powerful than anything RT (formally known as “Russia Today”) may be propagating.

While there was consensus on the importance of the West supporting Ukraine and ensuring its success and stability, many of Mr. Greene’s hard questions were often met with brief, inconclusive responses, not due to the discussants’ incompetence, but due to the daunting nature of the questions. Is it ok to restrict media freedoms in order to control Russian media propaganda (i.e., the recent case of the Baltics)? How do we respond to the rise of authoritarianism that is flourishing at the expense of democracy’s popularity? What do we do about the rampant human rights abuses throughout our strategic partner states in Central Asia? How do we deal with the weakened EU? Are we to simply come to terms with the fact that some countries, like Ukraine, will always be “stuck in the middle,” serving as “buffer zones” between Russia and the EU? If we cannot fight to promote democratic values in a country, and if we are to accept that some countries are always going to be caught in the middle, what are we doing talking about them? These were some of Mr. Greene’s panic-inducing questions that left the audience pondering long after the event was over.

Perhaps in a way, the ambiguities of this discussion reflect the current state of mind in Washington; democracy is in serious trouble: not only are the Western liberal values losing global support, but even basic human rights and freedoms are being violated on a regular basis. We are in the midst of a dangerous authoritarian pushback in Europe and Eurasia, and the new and fragile democracies that the West invested in so heavily are now at risk. We have plenty of tools to carefully study and understand these problems, take Freedom House’s excellent NIT report as one example, but we are unsure as to what exactly our role and responsibility may be in resolving these problems going forward.

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Author’s Note

The good news is that if these are the questions on the minds of FPRI’s readers, one needs to go no further than its Project on Democratic Transitions. For the past 10 years we have dedicated our time and efforts to analyzing what the West can do to help spread democracy, what it has done in the past, how successful its efforts have been, what lessons can be learned from our previous successes and failures in assisting democracy abroad, and when, where, and how it can be done better in the future. These are some of the questions that our October 2014 conference dealt with at length, and our forthcoming (Winter 2016) book entitled “Does Democracy Matter?” will explore in greater detail.

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