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We expressed the view that:

“The EU's attitudes and policies towards Russia have an uncoordinated character”.

We argued that:

“An updated approach should be drafted as a collaborative project between the Commission and the Council Secretariat”.

We were therefore very pleased to learn from the Government’s response that in March of this year, as we were preparing our report, the Foreign Secretary and Bernard Kouchner, the Foreign Minister of France, set down in a private joint letter to EU partners some thoughts on how the EU should engage with Russia.

As a result much work has gone forward, and we were told that a report will be prepared and put forward at the EU-Russian summit in November. What progress has been made about that? Will the document be made public in advance of the summit? Will it be subject to parliamentary scrutiny?

I end on a personal note, rather than with the view of my sub-committee. We concluded in May that:

“The European Union is not facing a new Cold War”.

I believe that that is still the case, but that the relationship between Russia and the European Union is multi-dimensional and that, for the present, while some dimensions allow for co-operation, others do not. We call in the report for,


Events in Georgia have certainly made this no easier, and much will depend on the results of the discussions beginning in Geneva next week. I hope therefore that the negotiations on the new agreement will resume as soon as possible. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on The European Union and Russia (14th Report, HL Paper 98).—(Lord Roper.)

10.34 am

Lord Truscott: My Lords, I declare my relevant energy and other interests, as stated in the Lords’ Register of Interests and recorded by the Advisory Committee on Business Appointments. I also declare an interest because I have a Russian wife, and as Vladimir Putin's biographer.

Incidentally, as Putin's biographer, I was never one of those who believed that the former president would

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quietly ride off into the sunset. Instead, what we now have is a political tandem, with Prime Minister Vladimir Putin firmly in the front seat and President Dmitry Medvedev holding up the rear.

Perhaps I may say at the outset how proud I am of the committee's work in producing the report before your Lordships' House, under the able chairmanship of the noble Lord, Lord Roper, from whom we have just heard. Our committee received excellent support from the Clerk and her staff, the committee specialist and our special adviser, Sir Roderick Braithwaite.

Since we wrote the report, the global credit crunch has gathered pace, and we have witnessed the brief Russian/Georgian war over South Ossetia and Abkhazia. Even so, I agree with the noble Lord, Lord Roper, that the findings and conclusions of our report remain sound and are a valuable addition to the debate about current and future relations between the EU and Russia. We wrote in the report that:

“The current difficulties in the relationship should not weaken the EU's determination to build a long-term partnership with Russia, based on dialogue, trust and common interests”.

We noted that the changes needed to transform Russia are likely to,

We said the EU needed a,

as the noble Lord, Lord Roper said, so the Russians see it in their own interests to work productively with the EU. The EU is Russia's major trading partner, the UK is its single biggest investor, and we share interests in the United Nations, the G8 and over major issues such as tackling terrorism, nuclear proliferation, the Middle East peace process, Afghanistan, and Iran's nuclear ambitions.

The EU accounts for 81 per cent of Russia's pipeline gas exports and 60 per cent of its oil exports. As supplier and consumer, we are locked in a close mutual embrace. As the noble Lord, Lord Roper, said, production shortfalls and the falling price of oil, now under 85 dollars a barrel—incidentally, at under 70 dollars a barrel the Russian federal budget will be in difficulty—present a major threat, as do the production shortfalls themselves, to Russia's ability to meet its international and domestic commitments.

As a former energy Minister, I have a particular interest in energy matters, and I believe that the noble Lord, Lord Crickhowell, will expand on this theme in his speech. Despite the Government's response to our report, I still believe that we were right in the committee in arguing that pressing Russia for ratification of the energy charter treaty is a waste of time. Far better to my mind would be to incorporate the principles of the ECT and the transit protocol in a new, legally binding, partnership and co-operation agreement. Most effective of all would be to develop a common EU energy policy, a liberalised competitive energy market and Europe-wide energy grids.

Since the conflict in Georgia, some have argued that Russia should be thrown out of the G8, its WTO membership should be blocked, and the EU should abandon negotiation of a new partnership and co-operation agreement between Brussels and Moscow.

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These were not the conclusions of our report, and I do not see a reason to change them. Engaging Russia is a far better policy than isolation or containment. It was appropriate for the EU to suspend talks on a new PCA until the Russians withdrew their armed forces from Georgia proper, but now they appear to have done so, negotiations should be resumed. I should be interested to hear the Minister’s view on that. Whether or not we like it, and many do not, South Ossetia and Abkhazia will not be returned to Georgian control sometime soon. I hope the EU can eventually broker a meaningful settlement of the dispute.

I will not speculate on who provoked whom, and whether they were backed or opposed by the state department or the Pentagon, but I will vouchsafe that miscalculations were made on all sides. The Georgians seemed to expect an easy victory; the Russians totally underestimated the economic cost of conflict in our interdependent world.

The result for Moscow was an outflow of $56 billion and the precipitation of the collapse of the Russian stock exchange, although other factors were at work here. Watching Russian TV on the family dacha outside St Petersburg as the crisis unfolded, it was revealing for me to see an oligarch on Russian television publicly begging the state president to provide liquidity to domestic industry as foreign capital took flight.

Georgia was Russia's Suez. The war cost Russia more than the lives of its servicemen and reputational damage abroad; it was starting to suck the economy dry. Moscow should rethink its strategy of international relations as a zero sum game, which to my mind is reminiscent of 1970s superpower politics. The world has since moved on.

For all the Russians’ talk of genocide in Georgia, the real ghost in the room was Kosovo. Moscow's argument was that if Kosovo could have its independence, why not South Ossetia and Abkhazia, and will the Crimea be far behind, with the growing dispute over the Russian lease of the Black Sea fleet base of Sevastopol? The Crimea is historically and ethnically part of Russia, and was gifted by the Ukrainian Soviet President Khrushchev to the Ukrainian SSR in the 1950s as a present. Of course, it did not matter in those days because it was the USSR which counted, not the supposedly autonomous Soviet socialist republics. Well, it certainly matters now.

In my view we are not witnessing a new cold war, as the noble Lord, Lord Roper, said, rather the evolution of a “Russia First” strategy, which re-emerged after the 1995 Duma elections and is characterised by a uniquely Russian approach to political and economic development which appropriates certain western skills and values while avoiding wholesale copying of western models of democracy and market economy. The result is a hybrid version of both and a re-assertion of Russian claims in perceived areas of historical and traditional interest, ranging from the Balkans to Russia's “near abroad”. What is new is not the strategy, but Russia's confidence—some would say arrogance—and new relative wealth to give it momentum and muscle. The EU has to come to terms with this new assertive Russia without losing its own policy coherence, and to my mind pragmatic engagement is the best approach.

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10.42 am

Lord Crickhowell: My Lords, like the noble Lord, Lord Truscott, I pay tribute to our chairman, the noble Lord, Lord Roper, the staff of the committee and our special adviser, Sir Roderick Braithwaite, who together had the formidable task of consolidating the mass of complicated and detailed evidence that we received. The committee was also particularly grateful to Sir Anthony Brenton, our ambassador in Moscow, and his team for the programme that was arranged for members of the committee in Moscow in December 2007 when the embassy was not having an easy time, particularly in dealing with the threat to the activities of the British Council.

I believe that the report we are debating provides a valuable foundation for further consideration of the EU's relations with Russia. However, the fact that our visit to Moscow took place as long ago as December last year, and that since then we have witnessed violent interventions in Georgia, leaves one to conclude that this is unfinished business to which we will have to return. That is particularly true of one element in the story to which our report referred, but which, because our primary role as a committee is to deal with European affairs, is not as central as perhaps it needs to be in any future report. I refer to the role of NATO. In paragraph 174 we said that,

The announcement by the United States that a radar and anti-missile system was to be stationed close to their borders was seen by the Russians as the final straw. The intense dislike that Russia feels for NATO was made particularly clear in a speech delivered by President Medvedev at Evian in France two days ago, in which he said:

“But the real issue is that NATO is bringing its military infrastructure right up to our borders and is drawing new dividing lines in Europe, this time along our western and southern frontiers. No matter what we are told, it is only natural that we should see this as action directed against us. But the moment we try to point out that this is objectively contrary to Russia’s national security interests everyone starts getting nervous. How else are we to interpret this behaviour?”.

I feel bound to question whether expansion of NATO to Russia's borders, and the encouragement of Georgia to join, adds to the security of the countries which Russia identifies as its near abroad, or to the stability of the world. It is not clear to me what NATO would have done if Georgia had been a member of it when Russian forces advanced into South Ossetia and beyond.

Reference has already been made to the very important article by Henry Kissinger and George Shultz in Wednesday’s Washington Post. My attitude is well summed up by their comment:

“Those of us who question the urgency with which NATO membership was pursued for Georgia and Ukraine are not advocating a sphere of influence for Russia in Eastern Europe. We consider Ukraine an essential part of the European architecture, and we favor a rapid evolution toward E.U. membership. We do believe that the security of Ukraine and Georgia should be placed in a larger context than mechanically advancing an integrated NATO command to a few hundred miles from Moscow”.

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Whatever the origins of the conflict, Russia's violation of Georgian sovereignty, its use of disproportionate force and its subsequent recognition of Abkhazia and South Ossetia was not acceptable conduct. But if you are powerless to send in forces, the right way to deal with such conduct is not by threats of military intervention but by making it very clear that Russia would pay a high political and economic price by pursuing a self-isolating course.

One of our witnesses told us that Russians consider that exercising their influence and control over the near abroad is as natural as the Monroe doctrine tradition is for the foreign policy of the United States. But the reality is that much of Russia’s near abroad is also Europe’s. As we concluded in paragraphs 204 and 205:

“It is therefore a particularly sensitive area and should be treated as such by both parties”.

I hope that we can take some encouragement from President Medvedev’s statement at Evian:

“I would like to emphasize that we are open to cooperation. And we intend to cooperate responsibly and pragmatically. The events of the last two months contain much tragedy but they are at the same time an example of pragmatic cooperation between Russia and the European Union. When Russia, Europe and the entire world found themselves confronted with crisis in the Caucasus, we managed to act in a proactive and coordinated manner with a sense of responsibility for our common European future”.

I hope that Russia’s future actions will reinforce and underline that statement made a couple of days ago.

Energy security, the other issue about which I wish to speak, connects directly with the recent events to which I have referred. We received particularly valuable evidence on energy issues from Professor Dieter Helm of Oxford University, and we devoted an important part of our report, chapter 5, to the subject. Europe’s dependence on energy supplies from Russia, primarily in the form of gas, is substantial, at perhaps 25 per cent overall, but dependence varies from 100 per cent in some countries to almost nil in the case of Britain. When the Government produced their generally favourable and positive response to our report, they were curiously complacent about Britain’s vulnerable position.

In paragraph 305, we said:

“The creation of genuinely competitive energy markets within Europe and the creation of Europe-wide energy grids should be a primary objective of EU policy. Even those countries (including the UK) that do not import significant quantities of Russian gas directly are vulnerable if supplies to their continental partners are interrupted; or if there is a prolonged period of cold weather. Exposure to a volatile spot market, without adequate storage facilities, and without long term contracts, mean that they could find themselves with soaring energy prices and gas supplies severely curtailed. Alternative supplies from Norway, even where they are available in sufficient quantity, will not be price competitive”.

Professor Helm warned us that even without dependency on Russian gas, the UK was “terribly exposed”. The Government’s response to that comment was that they did not accept that we were vulnerable, and they set out, in not very convincing terms, the arguments why they thought our present energy resources would meet every possible eventuality. However, the industry that has to deliver the gas took a rather different view, if a report in the business section of the Daily Telegraph of 11 September is correct. At an Ofgem conference in London, companies such as E.ON, RWE’s npower

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business, Centrica and others all pointed to our vulnerability, particularly with the threat of high prices and the likelihood that liquefied natural gas would go to other countries that are willing to pay for it. I quote:

“Chris Train, network operations director of the National Grid, said that although winters have been mild since 1987, severe weather would be ‘very challenging’ for the UK’s energy industry. ‘There should be sufficient generation to meet demand this winter,’ he said. ‘But that’s subject to credible risks and there has recently been a high level of coincidences’”.

Clearly, there are risks.

Since we took evidence on that point, as the noble Lord, Lord Roper, pointed out, the Government appear to have shifted position somewhat on the whole question of energy security. The recently departed Minister for Europe, Jim Murphy, to whom I also wish good fortune in his Scottish responsibilities, reporting to the committee on 12 September on events at the extraordinary European Council meeting, said:

“Russia’s actions in Georgia also illustrate the need for Europe to intensify efforts to ensure its long-term energy security. The European Council tasked the EU with examining initiatives to diversify energy supply, including increased support for infrastructure that diversifies energy sources, an increased commitment to renewable energy, measures to improve energy efficiency and measures to improve the internal market”.

That implies that the Government now accept the need for increased infrastructure projects, such as the Nabucco pipeline through Turkey. We suggested in paragraphs 302 and 303 of our report:

“Since a number of gas pipelines run through countries such as Ukraine whose bilateral relations with Russia can affect supplies to Western countries, the EU Member States should therefore take active and coherent measures, involving common funding where necessary, to diversify both sources of supply and transportation routes, including pipelines such as Nabucco, even where these are not obviously commercial (though recognising that Nabucco will not on its own solve the problems) ... The market will sort out many problems for the supply of gas, as it did after the first two oil shocks. However, on its own the market will not rapidly produce the right results, and considerations of security of supply need to enter into the equation”.

I end with a few short, general comments. Some recent reports and comments in the press have talked of a return to Cold War conditions and have given the impression that Putin’s Russia was a great power with the ability to threaten the world and even to challenge NATO and the West. No doubt, that was a reaction that delighted Mr Putin and will have pleased many Russians. It is, I judge, hardly the reality. Like the school bully, Russia has certainly found it relatively easy to torment and throw to the floor its weak little neighbour; but that does not make it a power able to realistically threaten the larger powers in both the West and the east.

In recent years, Russia has taken advantage of its energy resources and the high price of oil, but it is finding it increasingly difficult to meet the energy needs of its own people, let alone those of its principal customers. It needs those customers, and the EU is the biggest. It needs the investment and skills that it lacks—although I suspect that the noble Lord, Lord Browne, who I am pleased to see in his place, would tell me that in recent times it has hardly gone out of its way to encourage investment by non-Russian companies. It has certainly made it pretty difficult for BP and its investment in Russia.

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Russia has to reduce its overdependence on natural resources, and it may be hard hit by falling demand for those resources and the reduced price of oil and gas. It has a declining working population. Its armed forces have a great deal of outdated equipment, and defence expenditure as a share of national income and in relation to other powers is comparatively low. All that suggests that, if Russia continues to isolate itself from the wider world, it will be Russia that will be the poorer, not its neighbours.

Europe certainly needs to be firm and united in its reactions. The final conclusions of our report still seem valid:

“The sensible approach for the EU is to situate its relationship with Russia in a long-term perspective. The European Union is not facing a new Cold War but EU-Russia relations are perhaps in a negative phase in a long process of transition which could last for some time. Despite the difficulties, Russia cannot avoid dealing with the European Union on trade, on competition, on customs and frontier controls, and on a variety of other issues involving the European Union's common standards and regulatory procedures. Even when either side loses sight of it, they are bound by an inescapable common interest”.

I referred earlier to the important article by Henry Kissinger and George Shultz. They say:

“This drift toward confrontation must be ended. However appropriate as a temporary device for showing our concern, isolating Russia is not a sustainable long-range policy”.

They believe:

“The six points put forward by French President Nicolas Sarkozy provide a framework for a solution of the Georgian crisis formally accepted by all the parties: a genuinely independent Georgia, within its existing borders, while the status of South Ossetia and Abkhazia—disputed since the founding of Georgia—continues as the subject of negotiation within the security framework”.

I hope that they are right in their final conclusion, which has already been quoted by the noble Lord, Lord Roper, that,

That means a united effort by the European countries, not a fragmented effort, and a sense of increased realism from Russia.

10.59 am

Lord Skidelsky: My Lords, I was not a member of the House of Lords foreign affairs sub-committee, and I think that I am the first speaker today who was not a member, but I commended its report at the time as a sensible contribution to Europe-Russia relations, which mapped out the areas of possible co-operation between the EU and Russia. It highlighted challenging conflicts, which needed to be negotiated. I was particularly pleased that the noble Lord, Lord Roper, pointed out the crucial aspects of Russian psychology that influence the country’s behaviour. The feeling of resentment that it had lost out and that it is now in a position to get some of its own back has dominated its recent actions.

Since then, events have taken place. I shall not go into details on the TNK-BP dispute, which is the only aspect of the energy situation that I want to mention in my speech. Above all, there has been Georgia. I agree that EU-Russian relations are at a low ebb, but

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they are not at as low an ebb as UK-Russian relations. When the Georgian conflict broke out, President Sarkozy flew to Moscow and brokered the ceasefire and the agreement for the withdrawal of Russian troops. Our Foreign Secretary, David Miliband, flew to Kiev and gave an interesting lecture on the importance of international law, democratic governance, territorial integrity and so on. Britain did not have the EU presidency at the time, but can one imagine Gordon Brown flying to Moscow under those circumstances to broker a deal? One cannot, because Britain has absolutely no influence or leverage at all on Russia. That is what I meant when I said that our bilateral relationship with Russia is at a very low ebb; it is almost in deep freeze.

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