TTIP’s Implications for Moscow: Further Economic Isolation?

The Transatlantic Trade and Investment Partnership faces controversy over a number of domestic economical implications, but what does Russia stand to lose if the deal goes through? Could Russia find itself even more isolated from the Western community?

Second Order Effects of Free Trade

In recent months, the Obama administration has thrown much of its political capital behind two of the largest trade deals in U.S. history: the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). Though the U.S. Congress blocked the initiative, these trade deals would give the United States free-trade privileges with a substantial portion of the world economy. TTIP specifically would create the largest free trade area in the world. While world media has been obsessively focused with the domestic implications of TTIP for Europe and the United States, absent from this conversation is the second-order effect that the deal could have on the largest markets absent from the deal’s purview, most specifically Russia.


Negative Implications for Russia

The effect that TTIP could have on Russia’s trade portfolio is difficult to estimate, especially since it is contingent on the deal passing the prickly and skeptical legislative bodies of both the United States and the European Union, both of which are critical of the other’s motivations regarding how each respective business community will operate in the new market once (and if) the deal is fully implemented. If the partnership is ultimately implemented, however, Russia stands to be one of the largest losers. Put simply, the European Union is Russia’s largest trading partner, and TTIP stipulations would give the EU its desired alternative source for Russian goods, especially energy. Given new realities in American energy production and the economic potential brought on by a fully implemented TTIP, Russia could quickly see its largest export market flee westward.

For Europe to pivot more of its trade portfolio to the Americas would undoubtedly damage the revenue stream of Eastern exporters. Most threatening in this regard is if TTIP were to include an energy union. Currently, the United States, thanks to the extraction of previously unreachable reserves of shale oil and gas, has run massive production surpluses – so much so that it has run out of space for its excess hydrocarbons. Coupling this dynamic with European skepticism over its dependency on hydrocarbon imports, enshrining energy flows in the language of TTIP would be devastating to an already battered Russian economy. It is no secret that much of Russia’s fiscal policy is dependent on the revenue garnered from energy exports westward.

Russia’s economy is not entirely shattered yet. The potential to develop reserves on the Yamal peninsula and the greater Siberian arctic region could provide Russia with the resource richness conducive to their highly profitable export regime of the 2000s. However, much of this potential has been lost thanks to Russia’s unfavorable geopolitical position. The implications of TTIP, given that tapping Arctic reserves will require joint-ventures with the more technically-capable western energy companies, further threatens the Russian position. Already, Shell has pulled out of a partnership with Rosneft, most likely due to the unfavorable tax regime imposed upon foreign companies by the Kremlin. The reduction of investment barriers in the transatlantic economic area will only make this decision easier for energy firms who will most likely be priced into buying American reserves. Furthermore, American partnerships are much more politically stable than those with Russian oligarch-led firms operating in a very opaque legal environment.  


Domestic Scapegoats and Geopolitical Maneuvers

The consternation over the domestic implications of TTIP in Washington and Brussels is confusing, given the potential for economic growth and more favorable geopolitical positions for both capitals. Perhaps the European left’s concerns over the United States’ lack of standards (especially in food and agriculture), and American populists’ concerns over grossly unequal income distribution are well founded. However, the fact of the matter is that these concerns are going to be exacerbated by the existing economic systems as is, regardless of what the trade portfolios of the two entities are. It is likely that these trade deals offer legislators in the two capitals easily accessible scapegoats in light of the American campaign season, and the ongoing European sovereign debt crisis.

What Washington and Brussels fail to fully realize is that TTIP, and the greater considerations of economic partnership in the Transatlantic area, carry much greater weight in their geopolitical concerns than the last few years of purely qualitative diplomacy have. It seems that economic considerations are driving some of the largest diplomatic endeavors of the last year, namely the United States’ rapprochement with Cuba, and their ability to negotiate a nuclear deal with Iran. Sanctions against Russia in response to the Ukraine crisis have caused a considerable lack of confidence in the Russian market and exacerbated capital flight, but the fact remains that energy trade is Russia’s greatest economic vulnerability. If the West’s desire is to isolate Russia economically, TTIP is the best place to do it.