This paper proposes a brinkmanship game of unilateral deterrence to model the dynamics of energy trade between the European Union and Russia. Nuclear deterrence and crisis bargaining theory is extended to show the relationship between a spectrum of risk and trade dependency. Russia and the EU are mutually dependent upon continued natural gas trade, but Russia has an asymmetrical incentive to disrupt the status quo in order to extract a concession from the EU. It can do so by initiating a crisis that escalates toward a mutually disastrous gas shutoff through sequential bargaining. The risk of a gas shutoff is autonomous and contingent upon transit uncertainty as determined by an outside actor, Ukraine. The equilibrium in the proposed brinkmanship model is determined by each player's risk tolerance for a given set of variables; as long as disaster does not occur before the equilibrium risk level is reached, the player with the greater resolve prevails.
"Energy Trade Brinkmanship Between the European Union and Russia,"
Undergraduate Economic Review:
1, Article 1.
Available at: http://digitalcommons.iwu.edu/uer/vol7/iss1/1