Through Slovakia, Russia Loses Power Over Ukraine

Summary

Russian Foreign Minister Sergei Lavrov paid an official visit to Slovakia from April 3 to April 4. In the past year, Slovakia has become increasingly important in the ongoing conflict between Russia and Ukraine over Ukraine's strategic alignment with the West. One of Russia's key levers over the Ukrainian government has been the threat of limiting or cutting off natural gas supplies. Kiev has countered this threat by obtaining reverse flows of natural gas, essentially rerouting natural gas from European markets back into Ukraine through pipelines that ordinarily flow in the opposite direction. Most of these reverse flows have come from Slovakia. Lavrov's recent trip is part of Moscow's effort to persuade Slovakia's leadership to curb these flows and to oppose the continuation of EU sanctions on Russia. Moscow's options to boost its influence in Bratislava, however, are increasingly limited.

Analysis

Located in Europe's borderlands, Slovakia is a small, mountainous country that was historically subsumed by successive Central European kingdoms and empires. Today, it borders two highly strategic countries: Ukraine and Poland. Though Slovakia is a member of both NATO and the European Union, as well as the eurozone, the country's geography has prevented it from following the West unwaveringly. Instead, like many of its neighbors, Bratislava has had to pursue a strategy of balancing between Russia and the European Union. Following the onset of the crisis in Ukraine, however, Slovakia's Western allies have pushed for the country to take on a greater role in NATO's plans to boost its presence along the alliance's eastern borders — an effort that it hopes will promote Ukraine's reorientation away from Russia.

But because of its unique geopolitics, along with neighbors such as Hungary, Slovakia has opposed EU plans to impose significant economic sanctions on Russia. Though Slovakia's government ultimately voted in favor of these sanctions, Prime Minister Robert Fico has since publicly raised concerns that the sanctions are both ineffective and harmful to relations with Russia. Slovakia also opted out of U.S. plans to strengthen defense cooperation in the region through Operation Atlantic Resolve.

Moscow's influence in Slovakia is rooted in Russian energy exports and investment in the country. Bilateral trade is relatively modest; in 2013, only 4 percent of Slovakia's exports went to Russia and 10 percent of Slovakia's imports came from Russia. Nevertheless, in 2012 Russia's Sberbank entered Slovakia's market. By 2013, the bank held about 2.9 percent market share, although some reports in February 2014 hinted that it might leave the country. Regardless, in June 2014, Sberbank announced that it had reached a deal to lend $1.18 billion to Slovakia's top power firm, Slovenske Elektrarne. Under the terms of the agreement, Slovenske Elektrarne will spend some of these funds on nuclear fuel from Russia's Rosatom. For Russia, this loan serves a dual purpose: It enhances the role of a Russian bank in Slovakia's economy and reinforces the country's nuclear energy ties to Russia, thus increasing Moscow's leverage.

Slovakia, however, still has a much stronger negotiating position than its neighbors, such as Hungary. Slovakia is a major transit hub for Russian natural gas and oil on its way to key European markets. And unlike transit states such as Ukraine, Slovakia has access to European spot markets, meaning it can buy natural gas from countries such as Germany at a market rate. Slovakia is currently under a 20-year oil and natural gas contract with Gazprom, signed in 2008. The prices under this framework are modified every three years. Slovakia's access to energy markets in Western and Northwestern Europe have boosted its ability to negotiate more favorable prices. Moreover, a Slovakia-Hungary interconnector is scheduled to come online soon, putting Slovakia in an even more advantageous position. And as Slovakia's leverage is increasing, Russia's is declining with economic troubles constraining Moscow's ability to offer Slovakia new financial incentives.

For the West, Slovakia has become an important ally in the push to reduce Moscow's ability to enforce its will over Kiev, mainly because of Slovakia's assistance with reverse flows. At the start of the crisis in Ukraine, Russia's natural gas exports were a powerful tool because of Ukraine's abject dependency on these supplies, especially for heating. In September 2014, an upgraded pipeline connecting Slovakia's Vojany power station to Uzhgorod in western Ukraine came online. As a result, Slovakia is now pumping 38 million cubic meters a day to Ukraine, or about 13.9 billion cubic meters per year. Ukraine also has the ability to import 4 million cubic meters per day in reverse flows from Poland and 16 million cubic meters per day from Hungary. Slovakia, though, still has the largest capacity — and has proved to be a more stalwart supplier. Hungary in particular has vacillated based on its own political considerations, with periodic stoppages of natural gas flows to Ukraine and reductions to as little as 3 million cubic meters per day. Hungarian Prime Minister Viktor Orban even vowed that reverse flows of natural gas originating in Russia will not be exported to Ukraine.

Russian officials have repeatedly warned that Moscow considers reverse flows illegal, but Slovakia has continued to meet Ukraine's purchase demands. This boosts Kiev's negotiating position in energy negotiations with Russia. Ukraine's temporary natural gas deal with Russia's Gazprom in October, as well as the three-month deal reached in early April, are in part a result of Slovakia's willingness to work closely with Ukraine.

There are also indicators that Slovakia is moving toward increased cooperation with its NATO partners. In February, Bratislava officially asked the alliance to create a force integration unit in Slovakia. This unit would comprise only a small coordinating team, but the move shows that boosting defense cooperation is part of Slovakia's balancing strategy. In this, Bratislava may have the support of Slovakia's voters — according to polls conducted during the height of fighting in eastern Ukraine, the majority of Slovaks do not consider Ukraine to be a part of Russia's sphere of influence and oppose Russian intervention in the crisis.

Slovakia's geographic position in the borderlands continues to mean it will not be beholden to either Russia or the West. This is demonstrated by Bratislava's support of Ukraine through reverse flows and its hesitation to stand behind EU sanctions on Russia. Moscow's weak domestic economy and the constraints to boosting Russian investment in Slovakia, however, contrast sharply with Slovakia's deep integration into the eurozone. Because of this, as Slovakia continues to walk the line between both sides, Russia in particular will struggle to boost its influence over Bratislava.

Natural Gas Europe is pleased to provide this article in cooperation with Stratfor, a Natural Gas Europe Knowledge Partner.  For more visit http://www.stratfor.com/   Follow Stratfor: @stratfor on Twitter | Stratfor on Facebook