Russia’s Foreign Policy Shift Towards Cooperation With China In The Arctic Region: The Role Of Domestic Economic Actors

The Arctic is a physiographic region located at the northernmost part of the planet. The Arctic covers more than a sixth of the Earth’s total surface area plus the Arctic Ocean with the Arctic coastal countries’ frontiers. The Arctic has recently gained particular geopolitical significance due to the enormous energy resource reserves and the shipping alternatives of the Northern Sea Route, which is becoming available as a result of Global Warming.The Arctic region is one of the crucial destinations of Russia’s foreign, economic and military policy. More than 52% of the Arctic’s hydrocarbons concentrate in Russia, as well as the strategically important the Northern Sea Route and the biggest icebreaker fleet in the world. Arctic minerals(proven reserves and probable reserves) are the main part of the mineral resource base of the Russian Federation. The final contribution of the Arctic zone to overall Russian exports is about 25%.The Arctic also has become a new and important sphere of interest for China. After the economic crisis of 2008-2009, China became an active economic player in the Arctic(Greenland and Iceland etc.). In 2009, the Chinese government submitted an application to become a permanent observer to the Arctic Council. In 2013 China realized its political ambitions in the Arctic by becoming a permanent observer of the Arctic Council. Since 2013 we can also see an economic involvement of Chinese companies in the Russian Arctic. Nowadays, practically all Sino-Russian cooperation in the Arctic is concentrated on the sphere of hydrocarbons and only two major Russian companies are involved: Rosneft and Novatek.The main question of current research:Why did Russian approach towards China in the Arctic change notably about 2013 from a lack of substantial engagement towards significant cooperation?Sub-question:What have been the main factors driving Russian foreign policy towards cooperation with China in the Arctic? And how did it work?Concept of American scholar Steven E. Lobell is a theoretical framework of the current research. He assumed that foreign policy executives under the pressure of societal elites do not necessarily balance the shifts of aggregate power but concentrate on particular components of an ascending power’s capabilities(for ex. economy). Export-oriented firms see the state, whose economic power is rising as a natural ally and push the government towards focusing on the economic aspect of its rising power and therefore towards cooperation. In this particular case the exportoriented firms Rosneft and Novatek in this theory are used to explain Russia’s Foreign policy shift towards cooperation with China in the Arctic region, from which Russia had previously tried to exclude all non-Arctic powers.The research method includes process tracing. According to George and Bennett(2005) process tracing can be used in the form of “analytic explanation”. The goal of process tracing is to expose proofs for the role of the assumed variables in the process driving to the foreign policy outcomes.The structure of current research includes three chapters and a conclusion.The First Chapter is “Introduction”. The Chapter includes brief overview of the Arctic region, background of the Sino-Russian cooperation in the Arctic, theoretical framework, methodology,resources and literature review.The Second Chapter is called “Russian FPE and domestic economic actor’s assessment of China’s rise”. This Chapter represents an influence of the difference in power between China and Russian and its assessment by Russian foreign policy makers and the societal elites.Before 2013 the Russian government tried to limit the foreign presence in its Arctic oil and gas projects for reasons of national security. Up to 2013 China had the same fast dynamic of political, military and economic development, but Russia stopped assumed China as a threat in the Arctic under the pressure of business elite: the growth of China’s economy was good for Rosneft and Novatek, which could enlarge their export to China.The Third Chapter is “The influence of domestic economic actors on Russian FPE’s policy towards China in the Arctic”. This Chapter focuses on the domestic affairs of the Russian Federation: an influence of Rosneft and Novatek on the government. The aim of this chapter is to provide an analysis of the groups of interests in the energy industry, the legal basis of the lobbying, and the ways in which it is carried out. The current Chapter will describe the main features of oil and gas lobbying in Russia and present the main players.The main points of the Chapter:? Russia does not have a “Lobbying act”. Since 1995 Russian legislators have been unsuccessfully working on the “Lobbying Law”. The law would be unfavorable for government officials and deputies, as well as for the representatives of the business elite because now they can develop their informal ties and connections practically without restrictions. The lobbying act has no lobbyists.? Industry lobbying was the most influential in the USSR and remains the same in modern Russia.? In 2008-2012 the center of strategic decision-making in the energy sector has shifted at the level of the Government of the Russian Federation. The executive branch of power is the most influential, and hence the most interesting for pressure groups in the fuel sector.? The oil industry and the gas industry are organized in different ways. Gazprom clearly dominates in the gas market, where it has an export monopoly for natural gas. Novatek promised to play a significant role with the liberalization of LNG(liquid natural gas) exports. Although, the significance of Gazprom is undoubted at this stage. The access to the international oil market was not monopolized as in the case of natural gas. Nonetheless as a result of political and economic processes in the 2000 s, the majority-state-owned Rosneft became the most influential player. The different structure of the market requires different forms of political interaction of the gas and oil businesses with the state. A single oil lobby also does not exist in Russia. Sometimes, companies have common interests, for example, when it comes to raising the severance tax. However every company protects of its own interests. So when we talk about the oil and gas lobby, we can talk about joint actions of the whole industry, as well as about one company’s interests.? In modern Russia, politics and business are closely connected with each other and the role of specific individuals in the political and economic process can be extremely significant. The head of Rosneft, Igor Sechin, and the major shareholder of Novatek, Gennady Timchenko, are both close to the Russian President.? The distinctive features of Russian oil and gas lobbying are: personal involvement of businessmen in the legislative and executive authorities, the widespread practice of “revolving doors”(the situation when officials go to work for business and vice versa), the leading positions of state corporations, the ineffective lobbying of consumers, as well as key decisions being made in law transparency and in a short period of time. Big business has large resources and much more information about accepting decisions than other market participants. Some officials and deputies are lobbying for their own businesses. The most effective tool is having informal access to the President.? Rosneft and Novatek pursue their own objectives of profit and the companies’ developments also follow the governmental strategy of infrastructure and industrial development of the Arctic. Corporate interests are not contrary to the public interest. Taking into account the personal ties of the companies’ management with the president and an interdependence of the industry and the government, the fact that Rosneft and Novatek were able to change the monopoly of gas exports(Law "On natural gas exports"(2006)), to amend the taxation of the oil and gas industry and to allow the Chinese partners to participate in strategic projects seem rather natural.The oil and gas industry is the foundation of the Russian economy. The Arctic, with its huge reserves of hydrocarbons, is an extremely important destination for Russia. The Russian Arctic suffers from a lack of investment which is absolutely clear in conditions of the Western sanctions. And the western sanctions make the situation more severe. Two Russian companies(Rosneft and Novatek) achieved significant progress in their cooperation with China. These companies are pioneers of SinoRussian Arctic cooperation. The contracts(Yamal LNG and Vankor) and Chinese investments in the Arctic would not exist without administrative resources in the Russian government. Of course, the current geopolitical situation in the Arctic and in the world in general has influenced Russia’s Arctic policy but the crisis in relations between Russian and the West became clear in 2014 and Sino-Russian cooperation in the Arctic started in 2013. It means that the economic reason were the first driving factors which influenced Russian foreign policy decision making. Economic growths of China is peaceful and its high demand of oil and gas consumption is profitable for Russia because stimulate export of Russian hydrocarbons. The economic development of the Russian Arctic and the energy industry became more important for the Russians then limitation of the players in the Arctic(China is not the Arctic state). So we can’t deny the role of Rosneft and Novatek in the development of Sino-Russian economic cooperation in the Arctic.