Tuesday, March 4, 2014

The Role of International Law in Energy Investment and Transit in Russia

Since the fall of the Soviet Union, Russia has been a reliable supplier of gas to Europe. Russia supplies Europe with 100.7 million tons of gas a a year, approximately 38.7% of the total gas import in Europe. [1] Lately, and particularly since the situation in Ukraine started, Russia and Europe's relationship has degraded. As a result, recent legal developments prove that the energy market in the region tend to have restrictive procedures and ease high tensions. [2] However, international law that is currently in force does not always create a "mutual reliance," but rather a a panic over supplies and markets. With Russia as a relatively new member of the WTO, and taking into account the current political climate in Europe/Russia, what is the future of Russian energy relations on investment and transit, and the role international law has it?

In accordance with the general principle of international law of permanent state's sovereignty over natural resources through the United Nation's General Assembly resolutions 523, 626, 1515, 1803, and 3201 entitled "Declaration on the Establishment of New International Economic Order", every state has a right to nationalize its resources, and cannot be subject to economic, political, or other coercion to prevent the exercise of that right. [3] However, there are no specific rules that strictly deal with energy trade, but some general provisions from the WTO could apply to energy products and transit. Furthermore, the Energy Charter Treaty and the Treaty of Rome establish a common position for the EU and Russia on regulations, and thus frameworks for settling disputes where the host state fails to fulfill an obligation. [4] The aforementioned treaties and resolutions a crucial for the development of international law on energy production and transit, and provide possible solutions between producers, such as Russia, and consumer, particularly members of the EU.

Russia is the most important energy trade partner of the EU. [5] All of Russia's exports to the EU are supposed to be governed by the Energy Charter Treaty and WTO provisions to provide a balanced, efficient, and safe energy relationship. However, Russia has never ratified the Energy Charter Treaty, claiming that it is ineffective. [6] Since 2009, Russia has lobbied for a new treaty that creates a system for regulating international energy cooperation. As a response, the EU has proposed a "gradual convergence of legislation and standards between Russia and the EU, in line with the Partnership and Cooperation Agreement, that would create a common economic space." [7] However, neither party has specified the clear content of the term "common economic space." Specific policy areas that may be included in this space include issues involving the economy, environment, security, research, education, and culture. With such a broad language, it seems that international law does not have an large affect on energy production and transit in Russia. Moreover, with the future of Ukraine uncertain, the viability of Russia and Ukraine as energy partners (More than 80% of Russia's gas imports transit through Ukraine), the EU's energy dependency on Russian gas creates economic and political problems, and international law does not seem to solve such issues. [8]


[1][2][5][6][7] - http://www.unige.ch/gsi/Bienvenue/publications/euryopa/aseeva.pdf

[3] - http://www.un-documents.net/s6r3201.htm

[4] - http://www.eeas.europa.eu/russia/index_en.htm, and http://ec.europa.eu/energy/international/russia/dialogue/dialogue_en.htm

[8] - http://www.iea.org/statistics/statisticssearch/report/?country=UKRAINE&product=balances&year=2010

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