The article investigates, through a comparative analysis, the different mechanisms of influence that the EU and Russia are projecting in their shared neighborhood in shaping domestic politics. It focuses on the economic and energy sectors in order to analyze two relevant policies for contrasting EU and Russia’s influence in the case of the Southern Caucasus. Contrary to commonly held opinions, Russian influence is receding in both areas and is a dominant external actor only in Armenia. In contrast, the EU is slowly increasing its presence in the economic area and has become a key player in the energy sector.

The paper seeks to evaluate the scope and limits of the Russian state’s capacity to use oil and natural gas as strategic resources to revive Russia’s fortunes as a credible global power. It offers an analysis of the evolution of state-markets interactions in the energy sector from the late Gorbachev era to the present day. The paper briefly documents how Russian foreign policy became more assertive using energy as a strategic resource, particularly in crafting its relations with the European Union. Subsequently, the paper analyzes Russia’s limits of using energy as leverage in securing foreign policy objectives. Finally, it points to the impediments to normalizing a Russo-EU energy dialog.