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EU and Russia (EUC Report)

My Lords, like the noble Lord, Lord Truscott, I pay tribute to our chairman, the noble Lord, Lord Roper, the staff of the committee and our special adviser, Sir Roderick Braithwaite, who together had the formidable task of consolidating the mass of complicated and detailed evidence that we received. The committee was also particularly grateful to Sir Anthony Brenton, our ambassador in Moscow, and his team for the programme that was arranged for members of the committee in Moscow in December 2007 when the embassy was not having an easy time, particularly in dealing with the threat to the activities of the British Council. I believe that the report we are debating provides a valuable foundation for further consideration of the EU's relations with Russia. However, the fact that our visit to Moscow took place as long ago as December last year, and that since then we have witnessed violent interventions in Georgia, leaves one to conclude that this is unfinished business to which we will have to return. That is particularly true of one element in the story to which our report referred, but which, because our primary role as a committee is to deal with European affairs, is not as central as perhaps it needs to be in any future report. I refer to the role of NATO. In paragraph 174 we said that, "““the Russians feel betrayed by the West over its abandonment of the assurances they were given in early 1990 that NATO would not be enlarged””." The announcement by the United States that a radar and anti-missile system was to be stationed close to their borders was seen by the Russians as the final straw. The intense dislike that Russia feels for NATO was made particularly clear in a speech delivered by President Medvedev at Evian in France two days ago, in which he said: "““But the real issue is that NATO is bringing its military infrastructure right up to our borders and is drawing new dividing lines in Europe, this time along our western and southern frontiers. No matter what we are told, it is only natural that we should see this as action directed against us. But the moment we try to point out that this is objectively contrary to Russia’s national security interests everyone starts getting nervous. How else are we to interpret this behaviour?””." I feel bound to question whether expansion of NATO to Russia's borders, and the encouragement of Georgia to join, adds to the security of the countries which Russia identifies as its near abroad, or to the stability of the world. It is not clear to me what NATO would have done if Georgia had been a member of it when Russian forces advanced into South Ossetia and beyond. Reference has already been made to the very important article by Henry Kissinger and George Shultz in Wednesday’s Washington Post. My attitude is well summed up by their comment: "““Those of us who question the urgency with which NATO membership was pursued for Georgia and Ukraine are not advocating a sphere of influence for Russia in Eastern Europe. We consider Ukraine an essential part of the European architecture, and we favor a rapid evolution toward E.U. membership. We do believe that the security of Ukraine and Georgia should be placed in a larger context than mechanically advancing an integrated NATO command to a few hundred miles from Moscow””." Whatever the origins of the conflict, Russia's violation of Georgian sovereignty, its use of disproportionate force and its subsequent recognition of Abkhazia and South Ossetia was not acceptable conduct. But if you are powerless to send in forces, the right way to deal with such conduct is not by threats of military intervention but by making it very clear that Russia would pay a high political and economic price by pursuing a self-isolating course. One of our witnesses told us that Russians consider that exercising their influence and control over the near abroad is as natural as the Monroe doctrine tradition is for the foreign policy of the United States. But the reality is that much of Russia’s near abroad is also Europe’s. As we concluded in paragraphs 204 and 205: "““It is therefore a particularly sensitive area and should be treated as such by both parties””." I hope that we can take some encouragement from President Medvedev’s statement at Evian: "““I would like to emphasize that we are open to cooperation. And we intend to cooperate responsibly and pragmatically. The events of the last two months contain much tragedy but they are at the same time an example of pragmatic cooperation between Russia and the European Union. When Russia, Europe and the entire world found themselves confronted with crisis in the Caucasus, we managed to act in a proactive and coordinated manner with a sense of responsibility for our common European future””." I hope that Russia’s future actions will reinforce and underline that statement made a couple of days ago. Energy security, the other issue about which I wish to speak, connects directly with the recent events to which I have referred. We received particularly valuable evidence on energy issues from Professor Dieter Helm of Oxford University, and we devoted an important part of our report, chapter 5, to the subject. Europe’s dependence on energy supplies from Russia, primarily in the form of gas, is substantial, at perhaps 25 per cent overall, but dependence varies from 100 per cent in some countries to almost nil in the case of Britain. When the Government produced their generally favourable and positive response to our report, they were curiously complacent about Britain’s vulnerable position. In paragraph 305, we said: "““The creation of genuinely competitive energy markets within Europe and the creation of Europe-wide energy grids should be a primary objective of EU policy. Even those countries (including the UK) that do not import significant quantities of Russian gas directly are vulnerable if supplies to their continental partners are interrupted; or if there is a prolonged period of cold weather. Exposure to a volatile spot market, without adequate storage facilities, and without long term contracts, mean that they could find themselves with soaring energy prices and gas supplies severely curtailed. Alternative supplies from Norway, even where they are available in sufficient quantity, will not be price competitive””." Professor Helm warned us that even without dependency on Russian gas, the UK was ““terribly exposed””. The Government’s response to that comment was that they did not accept that we were vulnerable, and they set out, in not very convincing terms, the arguments why they thought our present energy resources would meet every possible eventuality. However, the industry that has to deliver the gas took a rather different view, if a report in the business section of the Daily Telegraph of 11 September is correct. At an Ofgem conference in London, companies such as E.ON, RWE’s npower business, Centrica and others all pointed to our vulnerability, particularly with the threat of high prices and the likelihood that liquefied natural gas would go to other countries that are willing to pay for it. I quote: "““Chris Train, network operations director of the National Grid, said that although winters have been mild since 1987, severe weather would be ‘very challenging’ for the UK’s energy industry. ‘There should be sufficient generation to meet demand this winter,’ he said. ‘But that’s subject to credible risks and there has recently been a high level of coincidences’””." Clearly, there are risks. Since we took evidence on that point, as the noble Lord, Lord Roper, pointed out, the Government appear to have shifted position somewhat on the whole question of energy security. The recently departed Minister for Europe, Jim Murphy, to whom I also wish good fortune in his Scottish responsibilities, reporting to the committee on 12 September on events at the extraordinary European Council meeting, said: "““Russia’s actions in Georgia also illustrate the need for Europe to intensify efforts to ensure its long-term energy security. The European Council tasked the EU with examining initiatives to diversify energy supply, including increased support for infrastructure that diversifies energy sources, an increased commitment to renewable energy, measures to improve energy efficiency and measures to improve the internal market””." That implies that the Government now accept the need for increased infrastructure projects, such as the Nabucco pipeline through Turkey. We suggested in paragraphs 302 and 303 of our report: "““Since a number of gas pipelines run through countries such as Ukraine whose bilateral relations with Russia can affect supplies to Western countries, the EU Member States should therefore take active and coherent measures, involving common funding where necessary, to diversify both sources of supply and transportation routes, including pipelines such as Nabucco, even where these are not obviously commercial (though recognising that Nabucco will not on its own solve the problems) … The market will sort out many problems for the supply of gas, as it did after the first two oil shocks. However, on its own the market will not rapidly produce the right results, and considerations of security of supply need to enter into the equation””." I end with a few short, general comments. Some recent reports and comments in the press have talked of a return to Cold War conditions and have given the impression that Putin’s Russia was a great power with the ability to threaten the world and even to challenge NATO and the West. No doubt, that was a reaction that delighted Mr Putin and will have pleased many Russians. It is, I judge, hardly the reality. Like the school bully, Russia has certainly found it relatively easy to torment and throw to the floor its weak little neighbour; but that does not make it a power able to realistically threaten the larger powers in both the West and the east. In recent years, Russia has taken advantage of its energy resources and the high price of oil, but it is finding it increasingly difficult to meet the energy needs of its own people, let alone those of its principal customers. It needs those customers, and the EU is the biggest. It needs the investment and skills that it lacks—although I suspect that the noble Lord, Lord Browne, who I am pleased to see in his place, would tell me that in recent times it has hardly gone out of its way to encourage investment by non-Russian companies. It has certainly made it pretty difficult for BP and its investment in Russia. Russia has to reduce its overdependence on natural resources, and it may be hard hit by falling demand for those resources and the reduced price of oil and gas. It has a declining working population. Its armed forces have a great deal of outdated equipment, and defence expenditure as a share of national income and in relation to other powers is comparatively low. All that suggests that, if Russia continues to isolate itself from the wider world, it will be Russia that will be the poorer, not its neighbours. Europe certainly needs to be firm and united in its reactions. The final conclusions of our report still seem valid: "““The sensible approach for the EU is to situate its relationship with Russia in a long-term perspective. The European Union is not facing a new Cold War but EU-Russia relations are perhaps in a negative phase in a long process of transition which could last for some time. Despite the difficulties, Russia cannot avoid dealing with the European Union on trade, on competition, on customs and frontier controls, and on a variety of other issues involving the European Union's common standards and regulatory procedures. Even when either side loses sight of it, they are bound by an inescapable common interest””." I referred earlier to the important article by Henry Kissinger and George Shultz. They say: "““This drift toward confrontation must be ended. However appropriate as a temporary device for showing our concern, isolating Russia is not a sustainable long-range policy””." They believe: "““The six points put forward by French President Nicolas Sarkozy provide a framework for a solution of the Georgian crisis formally accepted by all the parties: a genuinely independent Georgia, within its existing borders, while the status of South Ossetia and Abkhazia—disputed since the founding of Georgia—continues as the subject of negotiation within the security framework””." I hope that they are right in their final conclusion, which has already been quoted by the noble Lord, Lord Roper, that, "““the fundamental interests of the United States, Europe and Russia are more aligned today—or can be made so—even in the wake of the Georgian crisis, than at any point in recent history. We must not waste that opportunity””." That means a united effort by the European countries, not a fragmented effort, and a sense of increased realism from Russia.