The Future of the Eurasian Economic Union

Executive Summary:

• The Eurasian Economic Union (EAEU) has attempted to increase its influence by creating a permanent free-trade zone with Iran, entering talks with India on a free-trade agreement, and encouraging Uzbekistan to become a member.
• The EAEU has served as a way for Moscow to subvert sanctions since its full-scale invasion of Ukraine, but Kazakhstan has now indicated it will comply with certain sanctions.
• Russia’s declining financial situation and the outmigration of talent will likely damage the long-term attractiveness of the trade bloc.  

In March, leaders of the Eurasian Economic Union (EAEU) met with Indian officials to begin negotiations on a free-trade agreement (Sputnik.ru, March 27). The EAEU—comprising Russia, Kazakhstan, Belarus, Armenia, and Kyrgyzstan—could use this agreement to strengthen ties with New Delhi and further circumvent sanctions on Russia. India has a particular stake in this as Russia is its top oil supplier (IndianExpress, February 5; see EDM, April 27, August 16, 2023).

The EAEU was formed in 2015, developed from a customs union created in 2009 between Russia, Kazakhstan, and Belarus. In addition to the five member countries, Moldova, Uzbekistan, and Cuba hold observer status. Vietnam, Singapore, and Serbia have created bilateral free-trade zones with the EAEU, while the United Arab Emirates, Egypt, and Indonesia are negotiating similar measures (Kommersant, September 8, 2023).

The EAEU has all the official trappings of a trade union, including a development bank, a court of arbitration, and a rotating general council. Integration processes among member states continue, with a focus on integrating the bloc’s internal labor, energy, and agricultural markets, eliminating tariffs, and expanding transnational transit corridors. The Kremlin continues to list the EAEU’s further development as a strategic priority in its foreign policy directives. Ukraine’s decision not to pursue EAEU membership following the ousting of President Viktor Yanukovych in 2014 contributed to a steep decline in relations between Kyiv and Moscow in the lead-up to Russia’s expanded invasion in February 2022 (Rossiyskaya Gazeta, March 31, 2023). 

Trade Volume

One of the EAEU’s biggest shortcomings before the war in Ukraine had been the failure of the trade organization to increase trade volume significantly between Russia and the other member states. Internal trade between the member states as a percentage of total trade volume only rose from 13.5 to 14.6 percent between 2012 and 2021. The trade volume in manufactured goods decreased by over 50 percent in 2021, the last year with publicly available statistics. In 2021, on the eve of the invasion of Ukraine, trade with fellow EAEU members only constituted 8.8 percent of Russia’s total trade volume, which has barely changed since the organization was formed (Kommersant, July 6, 2022). 

One of the primary advantages that Russia receives from the trade bloc is the ability to subvert Western sanctions. Trade volumes increased between Russia and the other EAEU member states in the months following the invasion of Ukraine amid the Kremlin’s drive for import substitution policies to replace European and US companies, which exited Russia and Belarus in the aftermath of the invasion. Kazakhstan, Kyrgyzstan, and Armenia benefited as they resold sanctioned goods to Russia and Belarus (see EDM, May 18, 25, 2023). Astana, however, has now indicated it will comply with sanctions by banning the export of 106 different goods to Russia (Zakon.kz, October 19, 2023).

The most vocal criticism of the EAEU has recently come from Kazakhstan, whose energy exports often rely on Russian pipelines and ports. Aidan Karibzhanov, one of Kazakhstan’s most successful businessmen, suggested leaving the EAEU or temporarily freezing membership as a result of the sanctions against Russia and Belarus (Ulysmedia, March 17, 2022). Last June, Kazakh political scientist Daniyar Ashimbayev commented on an online petition circulating in Kazakhstan that called for the country to leave the EAEU. It garnered almost 65,000 signatures. Ashimbayev noted that such an exit is not feasible so long as Kazakhstan remains economically and logistically dependent on Russia (Orda.kz, June 8, 2023).

Room for Expansion? 

Uzbekistan remains the most populous country in the post-Soviet space after Ukraine and the most populous country in Central Asia. It has maintained a significant presence in Russia’s labor market in the decades since independence, sending up to 1.8 million workers every year, according to Uzbek political scientist Baxtiyr Alimdzhanov (Podrobno, February 10). The researcher noted that the war has improved the economic rationale for Uzbekistan’s membership in the EAEU, given the increased demand for labor from Central Asia to fill vacancies created by the Kremlin’s mobilization efforts. The Russian ambassador to Uzbekistan, Oleg Malginov, claimed in February 2024 that Uzbekistan may soon receive full membership. Still, foreign actors are actively trying to prevent Tashkent from joining the Russian-led trade bloc (Rossiyskaya Gazeta, March 6).

Tajikistan has also remained an observer in the EAEU and announced last year that it was not planning to join the trade bloc in the near future. This official pronouncement came despite the country’s heavy reliance on remittances from guest workers in Russia and active lobbying by Russian Foreign Minister Sergei Lavrov (Avesta.tj, June 7, 2023). Moldova gained observer status in 2018 but has not attended EAEU meetings since 2022. When pro-Western economist Dorin Recean became prime minister in 2023, Chisinau left the Commonwealth of Independent States and pulled out of dozens of agreements with other countries in the post-Soviet space (RIA Novosti, February 6).

The EAEU created a permanent free-trade zone with Tehran in December 2023. Russian businessmen stated at a roundtable following the deal’s signing, however, that much of the benefit either side will gain beyond short-term exports of matériel to Russia’s war efforts remains to be seen. Iran’s economy remains extremely opaque and dominated by government subsidies (Kommersant, December 25, 2023).

Moscow’s war has damaged long-term prospects for Russia’s ability to serve as a source of investment for EAEU members and potential partners. The Russian National Welfare Fund, which had built up substantial reserves from years of high oil and gas prices, contained 9 trillion rubles (about $102.4 billion by the January 2024 exchange rate) at the war’s outset. One of the main incentives that Russia offered Ukraine in December 2013 was 15 billion dollars from the fund as part of a failed bid to lure Kyiv into the trade bloc (Lenta, December 17, 2013). In early 2024, almost half of the fund had been depleted, mainly from war-related expenses (Meduza, January 23).

The EAEU continues to demonstrate diverging trends. Over the short term, trade volume has increased as the war provides new opportunities for exports to Russia. The EAEU, nonetheless, has made little progress in resolving the member states’ most significant long-term economic challenges, including moving away from a heavy dependence on commodity exports, attracting more investment into more value-added industries, and reversing brain drain. Russia’s declining financial situation and outmigration of talent from Russia will likely damage the long-term attractiveness of a trade bloc that remains dominated by Moscow.