Much ink has been spilled during the last couple of decades on describing and assessing the multiple facets of competition between Russia and the West in the post-Soviet space. This competition matters, but it is no longer the only geopolitical dynamic of significance. While the EU, the United States, and Russia have been busy inflaming or trying to avoid tensions in the region, few have paid attention to the silent and gradual rise of third powers. Although none of them are likely to match Russian, European, or American influence in the region, when taken together they significantly dilute both Russia’s former political, economic, and security dominance in the region, and the dyadic influence that Russia and the West exercise in the region.
Together with several colleagues, we recently conducted an audit of how China, Turkey, Iran, Israel, and the Arab states approach and deal with Belarus, Ukraine, Moldova, Georgia, Armenia, and Azerbaijan. Some of the figures that emerged from this inventory are quite striking.
In 2016, while trade turnover with the EU kept growing (the EU now represents 40 percent of Ukraine’s external trade), Ukraine exported twice as many goods to third powers (30 percent) as to Russia (12 percent). Ukraine exports as much to Egypt, Iraq, Saudi Arabia, and Tunisia as it does to Russia. In the same year, Moldova’s wine exports to China surged by 66 percent, meaning that China now imports more Moldovan wine than Russia does (3.8 million liters compared to 3 million liters). Even Armenia, a member of the Russia-led Eurasian Economic Union, exports more to third powers (27 percent of its exports) than to Russia (21 percent).
These third powers do not openly challenge the position of the EU and Russia in the region. But whenever there is money to be made, or partnerships to be built, they don’t feel particularly constrained by either Moscow or Brussels. Their growing footprint is changing the region and its relationship with both Russia and the West. Most former Soviet countries are more than happy to tap into alternative export markets, sources of investment, and political support. And they are equally happy to leverage these new links against conditionalities from Moscow, Washington, and Brussels, if need be.
Creeping Trade Diversification
The cornerstone of these intensifying relations with third powers in the EU-Russian neighborhood is profit. This has been clearly reflected in the proliferation of free trade agreements (FTAs) and the upsurge of bilateral trade. Georgia has clinched FTAs with Turkey and China, and consultations on similar agreements are underway with the Cooperation Council of Gulf Arab States and Hong Kong (China). Moldova has concluded an FTA with Turkey (which boosted bilateral trade turnover by 25 percent in 2017) and is negotiating one with China. Ukraine is in the advanced stages of finalizing and signing FTAs with Turkey and Israel, and China is also showing growing interest in securing an FTA with Ukraine. Somehow, Russia, which fought tooth and nail against free trade areas between Ukraine, Georgia, Moldova, and Armenia with the EU, has overlooked the Chinese policy of promoting free trade areas.
The further liberalization of trade is likely to strengthen third powers’ clout in the region. China and Turkey, for example, are among the top five trade partners of Azerbaijan, Belarus, Georgia, Moldova, and Ukraine, while China and Iran are the third and fifth trading partners of Armenia. Looking at the export figures of former Soviet states, the importance of the third-power markets becomes even more evident, and not just with regard to China and Turkey. In 2016, Egypt was the third destination for Ukraine’s exports after the EU and Russia. The same year, Azerbaijan exported more goods to Israel (7.3 percent) than to Russia (4.5 percent), and Iraq became Armenia’s fourth export market (7.7 percent).
There are also cases of a rapid sectoral deepening of commercial relations. As Russia imposed trade restrictions against Ukrainian dairy products, Kiev quickly reoriented its exports to the Chinese market. In the first half of 2017 alone, dairy exports from Ukraine to China skyrocketed, increasing ninefold. In the aftermath of Russia’s partial wine embargo, the value of Moldova’s alcoholic beverage exports to China soared from a meagre 2.5 percent in 2013 to 8.7 percent in 2017, outpacing exports to Russia (7.8 percent), which had previously been the main destination. And between 2013 and 2016, China’s imports of fertilizers from Belarus increased by 20 percent. The upswing of the third powers is mostly about trade, but not exclusively.
Connect, Travel, and Invest
In addition to ascending trade dynamics, transport links and tourism have also been expanding. Regional air carriers have launched new routes or increased the frequency of existing connections. Air China began direct flights to Belarus in 2015, and Minsk is actively pushing for additional flights to link Belarus with more cities in China. Fly Dubai and Qatar Airways launched direct flights to Tbilisi in 2011 and 2012, respectively, and Fly Dubai has also ventured into the Ukrainian (2011) and Moldovan (2012) markets. The number of flights connecting Armenia and Iran, in particular during the Iranian New Year period, Nowruz, has expanded significantly.
New railway routes with the third powers are slowly developing, too. The Baku–Tbilisi–Kars railway was completed in 2017 after nearly a decade, and in three years’ time, a 180-kilometer extension of this regional rail line to Iran could be finalized.
The multiplication of air connections, coupled with the policy of relaxing visa requirements practiced by most of the Eastern Partnership states, has amplified tourist traffic with third powers. The figures speak for themselves: in 2017, 1.7 million visitors to Georgia came from third powers, compared to 1.39 million Russian travelers. The number of tourists from third powers to Azerbaijan (850,000) was equal to the inflow of Russian tourists in 2017. In Armenia, Iranian visitors accounted for almost 18 percent of overall tourist numbers in the first half of 2017, compared to 7.5 percent from Russia.
Tourism and labor traffic has also grown in the other direction: over 1 million holidaymakers from Ukraine visited Turkey in 2016, while Georgians made 2.4 million trips to Turkey in 2017. Between 2010 and 2015, remittances from Turkey to Georgia almost doubled. And in 2017, tiny Israel was second (17 percent) only to Russia (33.6 percent) as a source of remittances to Moldova.
The side effect of growing trade and humanitarian contacts is the snowballing number of bilateral business missions and investment projects. Since 2008, businesses from the UAE have been investing in telecom, banking, and real estate in Georgia. Turkey has been active, too, investing in Georgian renewable energy projects and transportation.
China caught up quickly with investors from the Persian Gulf and Turkey. In the space of a decade, China’s Hualing Group pumped several hundred million dollars into insurance, logistics, transportation, and real estate projects in Georgia. From the position of the biggest single investor in that country, in 2017 Hualing Group expanded into the air transportation sector by purchasing a controlling stake in Georgian startup MyWayAirlines. China further entrenched its position in Georgia when CEFC Energy Company acquired a 75 percent stake in the Poti Free Industrial Zone. As a result, Chinese investments in Georgia soared from $10 million in 2011 to over $200 million in 2014.
In Azerbaijan, the China-led Asian Infrastructure Investment Bank (AIIB) has approved a $600 million loan to support construction of a gas pipeline connecting Azerbaijan and Turkey. In Belarus, together with local partners, China has set up an industrial park, which by early 2018 had attracted $1 billion in contracted investments. In Ukraine, China has pumped money into 3 million hectares of farmland since 2013, revitalizing previously depressed rural areas. Following in China’s footsteps, Saudi Arabia is also planning to invest in Ukraine’s agricultural sector. Looking to the future, almost all of the former Soviet countries are trying to position themselves favorably in order to benefit in one way or another from China’s expected cash-splash project, One Belt One Road.
Security Matters
Although economics is the driving force behind the rise of third powers in the region, there is also a security dimension. Predictions of the imminent death of Ukraine’s defense industry in the wake of the Russia-Ukraine conflict have proved to be premature. If Ukraine’s defense sector is still alive and kicking, it is also due to cooperation with third powers, which play an increasing role in Ukraine’s strategy to compensate for the termination of its cooperation with Russia. The exclusive producer of helicopter engines for Russia, Ukraine’s Motor Sich, ceased cooperation with Russia and sold 41 percent of its shares to Beijing Skyrizon Aviation, though the deal was put on ice by a Ukrainian court. Ukraine also struck a deal with the United Arab Emirates and Saudi Arabia to jointly manufacture An-132 and An-70 planes.
The war in Ukraine (and Syria) has been good publicity for Russia’s new military prowess, but it also seems to have been beneficial for Ukraine’s defense industry. According to the Stockholm International Peace Research Institute (SIPRI), Ukraine increased its share in global arms exports from 1.9 percent in 2007 to 2.6 percent in 2016. Figures show that in 2012–2016, China was the main customer of Ukraine’s defense industry (28 percent), not Russia (17 percent).
True, the suspension of exports to Russia and a ban on some Ukrainian exports, with a view to sending equipment to the front in Donbas, led to a temporary contraction of Ukrainian arms exports in 2015 to $323 million. But just a year later, exports rebounded to $756 million. Ultimately, cooperation with third powers not only helps to keep Ukraine’s defense industry afloat, but also maintains its capacity to supply its own armed forces with modern military systems.
Georgia’s defense industry is also looking for new opportunities overseas. It is now supplying armored medical evacuation vehicles to Saudi Arabia, while Belarus and Armenia are actively seeking cooperation with China for the modernization of their armed forces. China has supplied Armenia with advanced missile systems and has received Armenian officers for training at its military education institutions. It has also assisted Belarus in producing the Polonez autochthon missile launcher, and has conducted joint anti-terror drills in Belarus.
Third powers are also helping to boost the military capabilities of Azerbaijan, which through joint ventures with Turkish and Israeli companies has managed to scale up domestic production of weapons, ammunition, and drones. According to SIPRI, Israel’s share in Azerbaijan’s arms imports reached 29 percent in 2017, at the same time as Russia’s share decreased by 20 percent between 2010 and 2017.
A Perfect Match
The rise of third powers in Eastern Europe is a somewhat recent phenomenon. It has been gradually gaining speed throughout the last decade, but the recent breakdown of regional geopolitics related to the Russia-Ukraine war and its effects on the entire region have accelerated it further. This breakdown suddenly made post-Soviet overtures to other powers more urgent, and has created economic and political space for them to fill.
In other words, the surge of third powers in the post-Soviet space is propelled by the twin engines of rising demand for alternatives to Russia and the West, and growing supply of new ambitious economic and political regional players.
In terms of supply, the last decade has seen most of the third powers in question growing richer and more ambitious. They have the means and the political will to channel extra resources overseas, and Eastern Europe is one of the regions that money has reached. Everyone speaks of China in this context, but it also applies to Turkey and several Arab states. Even states with shakier economies are no less ambitious. Some of them, like Iran, are driven by regional security fears and ambitions.
As for demand, states like Ukraine, Belarus, Moldova, Georgia, Armenia, and Azerbaijan clearly want to further diversify their foreign policy and economic engagements. They reach out to third powers for different reasons. Georgia, Moldova, and Ukraine pivot toward such third powers in order to offset the losses they have incurred in the last decade of on-and-off trade embargoes from Russia. Their attempts to replace the Russian market with the Chinese, Turkish, or some Arab markets have been quite successful. Russia’s allies in the region, Armenia and Belarus, do not need to replace the Russian market, but they still want relations with other powers in order to lessen their dependence on Russia. At the same time, Belarus and Azerbaijan hope that flirting with third powers will also ease European criticism of their political systems.
The overall effect of these trends is to offer most post-Soviet states an increasing array of foreign, economic, and political options, and a wider and more stable foundation for much-coveted multi-vectoral foreign policies in which they can more often say no, if they want to—to both Moscow and Western capitals. In other words, the rise of third powers is starting to have an effect on both Russia and the West.
On the one hand, the emergence of third powers gradually weakens the economic levers of both Russia and the EU (the United States is, economically at least, less present in the region). But, at least in economic terms, this is probably more problematic for Russia than for the EU. The EU’s free trade areas with Ukraine, Moldova, and Georgia are designed to be compatible with other free trade areas (with Russia, Turkey, or China, for example). So, in trade terms, having free trade areas with Turkey and China does not threaten the EU’s trade relations with Georgia or Ukraine.
Not so for Russia. Its regional economic integration vehicle—the Eurasian Economic Union—is more rigid, supranational, and cannot accommodate multiple free trade areas unless they are agreed by all the countries involved. This means that the more post-Soviet states trade with other powers, the less likely they will ever be to join the Eurasian Union, or the more frustrated they are inside it (as in the case of Armenia). In other words, for Russian economic power in the region, association agreements with the EU are as much of a problem as Georgia, Moldova, or Ukraine having or pursuing free trade areas with China or Turkey. All of these trade links make Russia even less economically important and powerful.
For the EU, however, the problem is of a different nature. The rise of third powers appears to decrease the power of the EU’s political conditionality, which has never been strong in the region anyway. The EU pushes for reforms by linking them to access to the EU market, financial assistance, or prospects of increased investment. But it increasingly hears—not just in Minsk and Baku, but also in Kiev and Chisinau—that if Brussels insists too strongly on certain reforms, these capitals have other options for investment or export markets. The message is often that “if the Europeans don’t come without asking too many questions, the Chinese, the Turks, or Emiratis will.” This is certainly not the dominant mood in either Kiev or Chisinau, but such diplomatic signals are starting to be heard. In any event, the EU’s diplomatic leverage to promote reforms in exchange for market access or to incentivize countries to fight corruption is getting weaker.
And yet both Russia and the EU remain sanguine about these trends. From the EU and U.S. perspectives, the boosting of foreign policy and economic alternatives, and therefore the capacity for independence of the post-Soviet states, is a welcome trend. And from a Russian standpoint, all the other powers are seen as less hostile than the West, and therefore more tolerable. Yet both Russia and the West need to wake up to these new realities. They have spent much of the last two decades bickering over the post-Soviet space, but now it is time to look around and see that what is sometimes referred to as the shared neighborhood is not just shared by Russia and the West, but by others, too. And both Russia and the West need to make space for those others.
This material is a part of “Minimizing the Risk of an East-West Collision: Practical Ideas on European Security” project, supported by the UK Foreign and Commonwealth Office.