Russian economic influence in the Baltic-states - implications for national security

Authors:

  • Tomas Malmlöf

Publish date: 2010-07-07

Report number: FOI-R--3001--SE

Pages: 133

Written in: Swedish

Keywords:

  • Baltic Sea Region Security
  • Estonia
  • Latvia
  • Lithuania
  • Russia
  • economic security
  • economic and trade levers
  • trade patterns
  • energy supply
  • energy dependency
  • foreign direct investments

Abstract

The purpose of this study is to identify Russian ambitions and influence in Baltic trade and industry and the implications thereof for Baltic states´security policy. Interest is focused on the impact of Russian influence on the Baltic states´discretion in security policy and the consequences thereof on Baltic freedom of action. In this study, Russian economic influence over the Baltic states is analyzed on the basis of existing bilateral trade relations and Russian foreign direct investments in the Baltic economics. The reasons for this definition are that trade and FDI are strong indicators of economic instruments and other economic phenomena , while they to a great extent are possible to explore without access to qualified source material. Russian foreign policy has increasingly come to resume pre-existing claims on great power status as one of its central security objectives. Russia´s ruling elite would like to see the emergence of a multi-polar world, in which U.S. influence has been reduced and Russia is recognized as a legitimate centre of power on equal terms with other great powers. As a first step in realizing its foreign policy ambitions, Russia has consciously sought to regain lost influence in the former Eastern Bloc of countries in order to use these as a platform for a further political and economic expansion into Western Europe. This policy has been particularly noticeable in the former Soviet Republics, including the three Baltic States. Lacking positive soft power, Russia has increasingly come to rely on various political, economic and military forcible means or levers to bring its relations with other states in line with its own security policy and foreign policy interests. Constructing its own sphere of influence, Russia thus frequently ignores the legitimate security interests of smaller states. Russia´s economic levers are based on state control over the own strategic resources and key core companies, especially in the financial, transport and energy sectors. Actions of more prominent Russian companies abroad are therefore usually not solely guided by economic rationality, but also by voluntary or inflicted considerations of objectives of Russian foreign policy. While protecting its own markets from foreign investors, Russia exploits liberal and market-based legislation in other countries to gain control over foreign strategic resources and companies abroad. The aim to create asymmetric economic relations, which can be used to exert pressure on other states. The EU membership of the Baltic states and their admission to NATO has somewhat narrowed Russia´s possibilities to achieve political objectives in the Baltic states by different means of power. However, the use of economic levers has proved itself a relatively safe and cost-efficient way to exert continued influence. In their bilateral economic relations with Russia, all three Baltic states constitute a weaker part. The economic asymmetries, on which Russian advantage is based, are to a greater extent path dependent and based upon historical and geoeconomic circumstances. The Baltic states have formed a fairly true and realistic understanding of existing threats and risks in their economic relations with Russia. In varying degrees, they have also tried to neutralize them and to mitigate actual and potential consequences of Russian presence in strategically important sectors of society. The part of the economy that has offered the Baltic states most difficulties to protect from Russian presence and influence is the energy sector. Present development within the financial sector with more and bigger bankswith Russian equity capital is likewise a source of continuous concern. The energy sector in the Baltic states is fully dependent on imports of oil and gas, and to a lesser extent, electric power from Russia in order to meet energy needs in full. Dependence gives Russia considerable latitude on the Baltic energy markets; simultaneously it constitutes a serious threat to energy security of the three Baltic states. Russian state controlled or state influenced companies have built a significant presence in vital parts of the economies of the Baltic states through targeted investments. Dependence on Russian energy and difficulties to ward off penetration of unwanted Russian capital into energy markets and other sensitive economic sedtors expose the Baltic states to a kind of political and economic influence that is subtle and difficult to disentangle in all of its ramifications. The economic tenability of the Baltic states is therefore at risk of being challenged. Ultimately, this might be detrimental to Estonian, Latvian and Lithuanian statehood and have a restraining impact on their freedom of action.Based on Russian economic levers, the Baltic states are a risk of being used as instruments of Russian influence towards Euro-Atlantic institutions, and eventually, as a buffer zone against the United States and Atlantic-minded states in Western Europe. Whether Russia succeeds in using its economic levers might be crucial for the political credibility of the Baltic states in the eyes of the outside world - especially so far the EU and NATO. For Estonia, Latvia and Lithuania, this might represent the difference between having a say in the future economic and political development of the European continent in co-operation with other democratic states, and being banished to a political and economic gray zone in Russia´s shadow. An increased Russian influence over the Baltic states may also have negative consequences for Sweden. A weaker transatlantic link in the Baltic region is not in Swedish interest. An increased Russian presence could also affect the ability of Sweden to co-operate with the Baltic states within the EU framework. An important part of the EU northern dimension is therefore at risk of being lost.