Russia Forms Eurasian Economic Union With Ex-Soviet Nations

Troika Triumphs: Russia Forms Eurasian Economic Union With Ex-Soviet Nations

Russian President Vladimir Putin has signed a historic treaty with his counterparts from Belarus and Kazakhstan in a move that has led to the formation of a new trading bloc. The 3 ex-Soviet nations have formed the bloc with the aim of spurring development and economic progress in this region.

The trading bloc of 170 million people has a combined GDP of $2.7 trillion which is a massive challenge to the US and EU. The numbers speak for themselves. Facing sanctions from the US and EU, Putin has now achieved a victory through this treaty.

The creation of the Eurasian Economic Union in Astnana, the Kazakhstan capital is the result of over 20 years of talks between the former Soviet republics. Facing Western sanctions for the Crimea crisis, Putin now looks to align with the ex-Soviet nations to maximise trade profits and minimise risks.

The Russian leader had also pushed for membership of Ukraine into the union and an FTA zone from Lisbon to Vladivostok before the Ukraine crisis dealt a blow to EU-Russia relations. But with the new trading bloc, the Eurasian Economic Union is a geopolitcal triumph for Russia. Meanwhile, there is movement on the other side as well. Ukraine is looking to sign a free-trade treaty with EU on June 27.

With the victory of chocolate tycoon and pro-West billionaire, Petros Poroshenko, Ukraine-EU relations are set for a stronger integration. It was former Ukrainian President Viktor Yanukovych's suspension of an association agreement with EU that had led to his speedy ouster. The tables have certainly turned for Ukraine with Poroshenko at the helm.

Ukraine constitutes 4.7% of total trade in Russia as against 7.1% for Belarus and Kazakhstan. Eurasian integration is a move that will undoubtedly benefit all 3 nations because it will facilitate free flow of goods, money and workers in this region. The 3 countries will align their currencies and policies and the trading bloc will come into existence from the start of 2015.

The union will also level tariff and non-tariff regulations. Russia has held on to the oil and gas markets which are the biggest export earners for the country. Its economy is facing a possible recession owing to the sanctions imposed on the country by EU and the US.

Russia has also signed a protocol conceding $1.5 billion worth of oil revenue to Belarus. This is about half the export duties the smaller nation levies on oil products that are produced from Russian crude next year. Belarus also returns such export duties to Russia under the current law framework governing the union.

The trade bloc is expected to bridge the gap between Europe and Asia and balance Western unions. The Eurasian Economic Integration agreement has just been signed by the 3 countries to achieve this aim.

The Eurasian Economic Union will hold a quarter of the total energy reserves in the world. The “troika” states will follow a coordinated policy in industry, agriculture, energy sector and transport. Armenia and Kyrgyzstan are also considering joining the union. With economics taking on more importance in any country, the benefits of a trade bloc of the 3 nations is a counterweight to the Western unions.