Security considerations and trade in energy resources

Sergei F. Sutyrin
Professor, World Economy Department Head,
St.Petersburg State University, the WTO Chair holder
Nikita A. Lomagin
Professor, World Economy Department Deputy Head,
St.Petersburg State University


One could sensibly argue that any future sustainable model of global governance (perceived from the WTR 2010 perspective) should ultimately result in trade in natural resources pattern that simultaneously meets several basic requirements. At least, it has to be predictable, transparent, mutually advantageous, and responsive to changing economic environment. At the moment the situation is far from being satisfactory. This is largely due to a fact that all three groups of countries involved in energy trade — exporters, importers, and transit states — not just have serious respective security concerns but tend to prioritize them higher than commercial considerations. Under the circumstances existing difference in energy security perceptions between aforementioned groups constitutes one of major problems, if not the main one.

The need for finding a common denominator in terms of energy security is well understood practically by all affected parties. In particular, G-8 Summit in St.Petersburg (2006) has elaborated a quite detailed programme to cope with the issue; international institutions (OPEC, the EU to mentioned few) organizations have proposed their visions. General support of the idea came from US President Barack Obama and his Russian counterpart Dmitry Medvedev. This political will is complemented by certain trend towards convergence of theoretical approaches to energy security.

Two aforementioned components are very significant but not sufficient. In terms of theoretical understanding substantial gap still remains regarding interaction of market and non-market instruments in attempts to reduce price volatility of energy resources. The very nature of energy security also requires clarification. In particular, it is often claimed that this is a global good. Sharing this idea in general we would argue that at the national level energy security confirms (with sensible reservations) to the criteria of global public good. In contrast to that, international energy security rather belongs to the domain of global merit ones. The difference arrears to be significant and deserves detailed analysis.

From institutional point of view global energy issues (as well as any other global ones) should be tackled with appropriate tools, which at the moment are clearly lacking. According to our understanding there is a need to go beyond existing institutional framework and to establish something tentatively named Global Energy Forum (GEF). In line with general idea of network global governance model it would include all variety of stakeholders. First of all, they are major exporters, importers and transit countries presented both by state authorities and business community. Serious involvement of leading international institutions — WB, OECD, EU, OPEC, Gas Exporting Countries Forum (GECF), and many others — appears to be equally significant. Each of them has its own agenda, constituency, composition resulting in respective understanding of energy issues in general, trade in energy resources in particular.

What about World Trade Organization? Several points look relevant. Firstly, the WTO is in a way a newcomer in comparison with some representatives of “old guard” who for almost four decades tried to regulate the market under review.

Secondly, one could hardly expect that these institutions would willingly sacrifice any meaningful share of their responsibilities in favour of the WTO. At least for some of “old guard” this transfer of power means actual suicide.

Thirdly, internal dynamics doesn’t promote the WTO towards the leading position in global energy governance debate. In particular, serious problems experienced within the framework of DDA negatively influenced international image and soft power of the organization. At the moment, WTO could hardly sustain any additional workload especially such a heavy one as energy. In addition to that, some attempts to get substantial concessions on energy issues as a part of accession process have de facto failed. In contrast to their formal commitments, neither Saudi Arabia nor Ukraine significantly changed their behavior as energy actors after the WTO accession. It would be safe to suggest that (regardless of some expectations) this instrument of ‘harmonization’ will not work with other energy-exporting acceding countries (e.g. Russia, Iran, Iraq, and Algeria).

Fourthly, among the main strongholds of the WTO there are at least two advantages which could be invoked now. To start with, the institution has accumulated enormous experience in holding multilateral negotiations aimed at reaching a consensus based compromise. And this is exactly what is urgently needed for provision of sufficient conditions to launch fruitful global dialogue on energy governance. In addition to that, one might argue that current WTO leadership is ambitious, open-minded, and active.

Thus, at least for these reasons the only promising option for the WTO under the circumstances, from our point of view, is the following:

- to take reality as it is and not to strive for the role of the leading regulator in energy domain;
- to initiate parleys with key actors aimed at establishing of GEF;
- to participate in GEF activities in any possible way
- and later on to integrate into the WTO framework the results of such parleys.