A new framework for Russia-Germany energy policy

Energy and raw materials are a key feature of bilateral economic relations between Russia and Germany, which are known for their dynamism, with bilateral trade exceeding $61 billion (€45 billion) per year. Yet these relations are so far not governed by any overarching legal arrangement – something some observers see as a potential source of instability, particularly in light of both efforts by both countries to “diversify” their energy imports and exports. The German-Russian Raw Materials Forum, a bilateral discussion platform established in 2006, therefore recently proposed the development of a Framework Agreement on bilateral energy relations. 

Rudolf Dolzer, a former director general in the Office of the German Chancellor and currently the Co-Chairman of the Forum’s working group on international raw materials policies, discusses on Modern Russia the objectives and the details of the project for Russia-Germany energy policy, which has already received the support of decision-makers at the highest level both countries. 

Today’s energy relations between Russia and Germany remain ambivalent. There is a long tradition of good and productive relations, which are in each country’s interest, and the recent opening of the Nord Stream pipeline illustrates the great potential that remains to be tapped. However, one must concede that there are also signs of mutual mistrust, which have produced tensions in past years. “Diversification” has become a defining word in current discussions on Russia-Germany energy relations, with both Berlin and Moscow repeatedly stating their intention to develop energy relations with other partners to reduce their respective dependency on the other country’s exports/imports. Even though the content of these alleged diversification strategies remains largely unclear, the reservations they exemplify have real consequences: to this day, there is no legal agreement between Russia and Germany providing a reliable framework for bilateral energy relations. 

All of this plays out at a moment when global energy relations are in a state of unpredictable flux. In the long term, both energy-producing and energy-consuming countries must ensure supply security. But in the short term, they have to deal with the volatility of energy markets in a context characterized by unconventional (and unsecure) gas exploitation techniques such as shale gas, the participation of new financial investors in the market and a lack of funds for urgently needed infrastructure upgrades in most supply countries. Germany’s situation became even more complex following its recent decision to phase out nuclear energy. Experts assume that German gas imports from Russia will have to increase by 30 percent in the near future. Alternative options would include buying gas from Algeria, Iran or Qatar, with all the incalculable political risks linked to these suppliers.

Against this domestic and international backdrop, my assessment of a reasonable choice both for Germany and Russia is that both countries should work on developing mechanisms to stabilize their bilateral energy relations, which should take into account the obligations arising from Germany’s European Union membership. In my view, the development of a Framework Agreement on German-Russian Energy Relations would be the best way to achieve this. 

According to this new approach, all companies and scientific institutions active in the field of Russia-Germany energy policy - at any level of the value chain from the exploration of the fields to the modalities of trade and distribution - would be able to base their activities on a set of guidelines, which could dramatically improve cooperation. For instance, this new agreement would set up a mechanism for German companies to inform their Russian partners of their expected energy import volumes, while the Russian side would signal their available resources and capacities, thus easing planning and infrastructure financing. 

Beyond this increased planning security, a framework agreement on bilateral energy relations could also lay the groundwork for intensified cooperation on financial, technical and scientific matters, covering such various aspects as resource efficiency and environmental and labor standards in the raw material sector. Specific forms of legal cooperation, and in particular a robust approach to the settlement of disputes, would also form a significant part of such an agreement.

Our proposal, which was first presented this spring in Omsk during the annual meeting of the German-Russian Raw Materials Forum, has generated significant interest with the political leaders of both countries, most importantly President Medvedev and Chancellor Merkel. The matter was discussed during recent bilateral governmental talks in Moscow, and in October, at the Raw Material Forum in Murmansk, it was agreed that the Forum would present the preliminary conclusions of its work on an agreement to the German and Russian governments in 2012. 

We are aware of various political, economic and perhaps even legal difficulties the development of the proposed raw materials framework agreement may face. Yet its fundamental objective is unmistakably valid: the conclusion of a framework agreement is in both Russia’s and Germany’s interest. And given the key role of energy and raw materials in bilateral relations between Russia and Germany, the agreement would have the potential to become a cornerstone of the modernization partnership upon which the two countries have embarked.

Rudolf Dolzer has been Co-Chairman of the “international relations” working group of the German-Russian Raw Materials Forum since 2008. He previously served as director general in the Office of the German Chancellor between 1992 and 1996. A law professor, Dolzer holds doctorates from the University of Heidelberg and from Harvard Law School. Besides energy issues, he specializes in commercial international arbitration and international investment law. He will teach at the Southern Methodist University Law School in Texas in 2012.