Eurasian Economic Union Unlikely to Rival European Union

While the formation of the Eurasian Economic Union (EEU), effective from 1st January 2015, sounds like an epoch-making historic bloc, it is unlikely to stir much attention from the Western world with unclear economic advantages. The EEU, includes Russia, Belarus, Kazakhstan and Armenia (with Kyrgyzstan expected to join later this year), covers over 15.0% of the  world’s land area and hopes to rival the European Union (EU). Yet its biggest weakness is the absence of Ukraine – the second largest post-Soviet state – making it rather difficult to compete with the EU.

Land Area in the EEU and the EU: 2013

EEU chart 1

Source: Euromonitor International from UN Food and Agriculture Organisation, FAOSTAT

Rivalling the EU will be challenging

  • The EEU’s (to be) five member bloc covers 15.1% of the the earth’s surface giving the blocTweet-This an abundance of natural resources. At the same time, the huge size means that some part of the land area is always in disarray. The EU, on the other hand, covers a small land area of 3.2%;
  • In 2013, the EEU had a total GDP of US$2.4 trillion (or 3.2% of global GDP) compared to the EU’s US$17.9 trillion economy (or 23.6% of global GDP) in the same year. In order to compete with the EU, the EEU will have to attract some bigger Asian economies;
  • The common economic space will give member economies access to the EEU’s 179 million consumers (as of 2014). By comparison, the EU’s consumer market of more affluent 502 million people will be more attractive to marketers;
  • In terms of aggregate trade (that is, the total of exports and imports), the EEU had an aggregate trade of US$1.1 trillion in 2013 compared to the EU’s US$11.6 trillion. The EU is, however, amongst Russia’s and Kazakhstan’s biggest trading partners accounting for over 45.0% of the respective countries exports in 2013;
  • With regards to oil and gas reserves, Russia and Kazakhstan alone held 17.9% of global proven gas reserves (year end) and 7.3% of global proven oil reserves in 2013. This can offer favourable energy solutions to member countries.

World’s Top 15 Countries with Proven Oil Reserves: 2013

EEU-chart-2

Source: Euromonitor International from BP Amoco, BP Statistical Review of World Energy

Bloc begins on a weak front

Russian President Vladimir Putin’s attempt of creating a post-Soviet bloc to rival the EU might be more of a political union behind the façade of an economic union that aims to pool its lucrative resources together and create a single market economy in post-Soviet states allowing free movement of trade, services, capital and labour by 2025:

  • Political tensions over Russia’s dominance in the bloc are already apparent amongst member states like Belarus and Kazakhstan who do not wish to align themselves with Russian geopolitical policies – particularly the involvement in Ukraine’s crisis and would prefer maintaining an independent foreign policy;
  • The EEU, which serves as a replacement to the Eurasian Customs Union, led to more trading disparities with few economic advantages. Member states have refrained from adopting a single currency to protect themselves from Russia’s economic crisis and the vulnerability of its collapsing rouble which tanked by 67.8% against the US dollar in 2014;
  • Ukraine’s non-membership in the bloc is the EEU’s biggest weakness. The second largest economy in the post-Soviet Union had a population of 45.2 million in 2014 and large-scale heavy industries that would prove to be advantageous to the bloc. Given the tense relations between Ukraine and Russia, Ukraine is more likely to pursue an integration with the EU.

Expansion vital to gain global prominence

The EEU is an attempt to redraw the global economic map. It has the potential to become a powerful economic centre for trade from Europe and Asia and will no doubt lower costs of doing business in member countries in the long run. There is, however, no clarity as to how this economic integration can culminate into something that member countries can benefit from. Sanctions from the Western world against Russia and the global decline in commodity prices are biting member countries. Welcoming new members, especially Asian countries, will be the key to the EEU’s success in the future particularly as any country that joins the EEU cannot join the EU. Tajikistan is evaluating its proposal of joining the bloc while Maldova is divided. Others in Asia are more likely to closely watch the EEU to see what type of trade body it forms and evaluate whether they want to join.