The Eurasian Economic Union is an economic union of post-Soviet states located in Eastern Europe, Western Asia and Central Asia. The Treaty on the Eurasian Economic Union was signed on 29 May 2014 by the leaders of Belarus, Kazakhstan, and Russia, and came into force on 1 January 2015. Wikipedia
Explainer | What about the EAEU? Why Russia’s trade bloc is not a sanctions backdoor
The idea that the Eurasian Economic Union can help Moscow violate sanctions is exaggerated.
Maximilian Hess Mar 4, 2022
As Russia faces the most stinging sanctions regime imposed on a major global economy in modern times, one question often arising this week is to what extent President Vladimir Putin might employ the Eurasian Economic Union (EAEU) to mitigate the impact.
Formalized in the aftermath of Russia’s 2014 annexation of Crimea and the West’s initial sanctions, the EAEU is a free trade zone and customs union consisting of five ex-Soviet states: Russia, Armenia, Belarus, Kazakhstan and Kyrgyzstan. In theory, goods and labor can move about relatively frictionlessly, akin to the European Union’s single market. Notable customs barriers do remain, however.
After Moscow sent tanks into Ukraine last month, the West cut Moscow’s access to its foreign reserves, barred its central bank from borrowing, slapped crippling restrictions on its high-tech and defense sectors, and blacklisted a growing number of Kremlin cronies and oligarchs. Once unthinkable asset seizures are underway. Western firms are pulling out of Russia at a faster rate than they did during the Bolshevik Revolution. Asian economic powerhouses such as South Korea and Japan have signed on to the sanctions. Even Chinese-led lenders are spooked and implying they might comply with Western sanctions.
In this environment, there have been calls in the West to pre-emptively sanction the other four EAEU members to close any loopholes to this economic chokehold. The members are all dependent on Russia in one way or another, the thinking goes, so they owe Moscow. Only weeks ago, for example, Russian troops were patrolling Kazakhstan at the president’s invitation following unprecedented unrest. Armenia depends on Russian troops to patrol its borders.
The reality, however, is that the EAEU is unable to significantly temper the economic and financial disruption that Russia is already experiencing, and which will cause a substantial, and potentially protracted, recession across the region. JPMorgan on March 3 predicted that Russia faces a 35 percent contraction in the second quarter.
But what about their banks?
None of the EAEU members can itself offer an economic lifeline or to serve as a financing hub to get around banking restrictions, such as the move to disconnect Russia from the SWIFT messaging system that underpins global transactions. The size of Russia’s economy and trade financing is comparatively too large – Russia’s GDP accounts for 86 percent of combined EAEU output. And any transactions with partners in countries that have signed up to the new sanctions regime would receive a hard “no” from all but the most incompetent compliance departments.
Finally, the EAEU members are unlikely to provide a bolt hole for oligarch and Kremlin official funds. Beautiful as they are, Belarus, Kazakhstan, Armenia and Kyrgyzstan lack the garish allure of Knightsbridge or the yacht docks of the south of France. More importantly, their political classes are certainly not safe from Kremlin pressure – stowing money beyond Putin’s reach has long been a key factor in the development of Londongrad and its ilk.
The reality is that the plumbing and structure of the global financial system means that the EAEU is unable to dilute the pain of the most significant sanctions. China is the one country that could effectively sidestep the Western-led sanctions regime if it were so inclined. But there would be little reason for it to channel its efforts through the EAEU.
Maximilian Hess is a London-based political risk analyst and writer.
Eurasian Economic Union (EAEU)
Updated January 01, 2021
- The Eurasian Economic Union (EAEU) is a free trade agreement that came into being in 2015 to increase economic cooperation and raise the standard of living of its members.
- Member countries include Russia, Armenia, Belarus, Kazakhstan, and Kyrgyzstan.
- Unlike the European Union (EU), the EAEU does not share a common currency.
The EAEU ensures the free movement of goods, services, labor, and capital between the states, and provides for common policies in the macroeconomic sphere, transport, industry and agriculture, energy, foreign trade and investment, customs, technical regulation, competition, and antitrust regulation. Unlike the treaty forming the Eurozone, the treaty forming the EAEU has not to date established a single currency.
Russian President Vladimir Putin signaled his ultimate goal is to extend the Eurasian Economic Union to all of the post-Soviet states. This would necessarily exclude the three Baltic states (Lithuania, Latvia, and Estonia) who have already instead joined the European Union.
Tajikistan, Uzbekistan, Georgia, Moldova, Ukraine, and Turkey have each been offered membership. However, Georgia, Moldova, Ukraine, and Turkey have also been offered EU membership. Pro-Russian break-away regions in Georgia, Moldova, and Ukraine have all made moves toward integrating with the EAEU. These two economic unions are, in effect, locked in competition over the economic integration of Eastern Europe.