Energy Diversification in the Baltics and the Geopolitical Implications
This month, the Royal Navy sent its largest ever amphibious force to the Baltic region as part of a new defence organisation. The new organisation, known as the British-led Joint Expeditionary Force, commands over 4000 troops and 44 ships from nine nations (1). Furthermore, just three weeks ago NATO sent an 18-nation task force, comprising of over 8,500 troops, to conduct the 47th BALTOPS (Baltic Operations) exercise (2). For Western allies, such exercises are in response to continued fears of Russian belligerence in Eastern Europe. However, the threat of a military foray from Moscow is arguably not the most pressing matter for NATO’s easternmost Baltic members. Instead, some analysts point to the issue of energy security in the region. Energy security acts as a more realistic threat, given that Moscow can threaten the supply to the Baltics without expecting any real retaliation. Secondly, as this paper will explore in greater detail, changes to trends in regional energy security can act as a precipitant to real confrontation.
Being former Soviet territories, the Baltic states’ (for the purpose of this paper being Lithuania, Latvia and Estonia) geopolitical situation is tied closely to that of Russia. The dissolution of the Soviet Union in 1991 left the newly independent states with outdated Soviet infrastructure connected directly to Russia and cut off from the rest of Europe. A further consequence of this was that in the newly capitalistic system of Eastern Europe, the Baltic states found their infrastructure not to be nationalised, or even privatised by domestic investors, but instead owned by Russian companies. For instance, at the start of this century around 37% of Estonia’s Eesti Gaas was owned by a single Russian company: Gazprom (3). A further 10% of Estonia’s gas network was controlled by another Russian company called ITERA. This trend is evident in the other two republics. Combining the two companies’ equities, one finds they hold a shared 50% of Latvia’s Latvias Gaze and over 37% of Lithuania’s Lietuvos Dujo.
Given the continued Russian monopoly of energy markets, governments in the Baltic capitals have become increasingly interested in diversifying their supply chains to other neighbouring states. Cooperation is most pronounced from two EU member states Poland and Sweden, with the EU expressing broad enthusiasm to integrate the Baltics into the European energy system. However, the situation is not uniform across the three states. Estonia makes use of domestic shale oil reserves, Latvia benefits from hydroelectric plants and Lithuania relies heavily on gas imports (ever since the forced shutdown of its nuclear plant in 2009, courtesy of the EU’s terms of union membership) (4). The official initiative is the Baltic Energy Market Interconnection Plan (BEMIP). The objective is described as the achievement of “an open and integrated regional electricity and gas market between EU countries in the Baltic Sea region, ending energy isolation” (5). A number of successful projects have arisen from BEMIP. One example is LitPol Link, connecting the Lithuanian (and subsequently Latvian and Estonian) energy grids to Poland. Equally, heading in the other direction, Estlink is an underwater set of power cables connecting Estonia to Finland. The transition away from Russia towards Nordic and Central European energy providers requires a period of ‘desynchronisation’, wherein a gradual shift from one grid to another will alienate the Russian export market. Indeed, in a sense, the European desire to end energy isolation will only help to isolate Russian access to the region. One’s imagination does not have to venture far to foresee Moscow reacting poorly to this geopolitical rebalance, in particular as it will completely isolate Kaliningrad. Further, any Russian attempts to undercut market prices through the development of a Kaliningrad nuclear power plant could be thwarted by even more planned integration efforts such as NordBalt (connecting Sweden and Lithuania) and LitPol Link 2 (6).
For the Baltic states, as elsewhere, energy security will play a role in determining the relationship to Russia as its principal supplier. The World Energy Council’s Trilemma offers an effective way to see how mature a country’s energy system is. While sustainability is certainly an important factor, the other two points are more immediately effective in determining something like the reliability of imports. On the one hand energy security amounts to how protected a country’s import and domestic production lines are, and the sophistication of the infrastructure to provide it. On the other hand, energy equity is concerned with the maintenance of stable and affordable market prices. For the Baltic states, security is always at risk since Russia maintains control of their energy imports. For instance, one is immediately reminded of Moscow and Kiev’s many disputes that have led to the former cutting off gas exports to the latter (7). Building from this, energy market prices can also be controlled by Moscow’s exports, where an abundance could lead to a saturated market and cheaper prices for consumers in the Baltics. Conversely, a strangled Russian export policy (not an unthinkable scenario given the encroachment of NATO and the EU to its borders) would see skyrocketing prices for the importing states, with consequence effects on industry, transport and domestic use. The diversification of the Baltic energy supply can be seen thus through the dual perspective of promoting energy security as well as equity for the consumer.
Various theoretical approaches interconnect and build a more comprehensive picture of how Russia might react to changes in Baltic energy trends. The first is a neoliberal approach, where economic connectedness between the Baltic region and Russia is more likely to mitigate conflict. This interdependence, according to theorists like Robert Keohane, is reliant on human-constructed institutions which bind the fortunes of states together and inevitably make conflict, or aggression of any real kind, unfavourable for both actors. For a state like Russia, according to this approach, gains arising from economic cooperation should come as an absolute gain; if Russia can increase its wealth through exporting oil and gas then it should not be concerned with where else the Baltics source their energy. The flip side, however, is that in a geopolitical environment rampant with power competition, Moscow is acutely aware that any decline in trade to partners in the Baltic region will result in its own economic alienation coupled alongside the unavoidable benefits to rival states and bodies, like the European Union or new export powers like the Nordic states. Trade acts as just one of many institutions that might be slotted into a framework known as the English School. By tying the two actors together through trade and economic links, one can theorise that the creation of a supranational body, or a society, can emerge and connect actors together. The English School explores this by suggesting that an international society - for our argument we will assume this society involves the Baltics and Russia – can pursue common, supposedly universal goals of peace and prosperity. Indeed, the English School bases itself on the premise that state interests are becoming increasingly marginalised, with values of order and justice becoming ever more prominent (8). The fact of the matter though is that such goals are starkly univariable and are fallible to other factors such as cultural incoherency, security uncertainties and market price fluctuations. The consequence is that while one may be tempted to believe that ties between the two states will forever blossom a workable, cooperative bilateral relationship, the possibility always remains for a diversion of interests and breakdown of trust: not least of which could be the emergence of new actors (import partners such as Sweden, or new private technology companies promoting renewables) into the aforementioned international society.
The flip side of this approach would be a structural one, particularly a neorealist vision based on fundamentals of competition and state self-interest. If the Baltics pursue a policy of promoting Energy security and equity then they may find themselves actually eroding the very tools which had previously promoted stability: economic interconnectedness and shared energy markets. For Moscow, fears of an overreliance on energy – and the consequence of the minimisation of this asset – are not new, and crucially will promote unease and discontent along the Baltic borders. As Martin Smith identifies, the finite quality of oil and gas as Russia’s primary exports signify a fundamental vulnerability that other states might exploit. This reliance is known as ‘Material Monodimensionalism’, and is reminiscent of the Soviet economy, which of course crumbled (9). Concerning this economic interdependence, and its relevance to contemporary geopolitical situations like in the Baltics, one can turn to John Mearsheimer. Mearsheimer critiques the idea that liberal institutionalism and economic interdependence actually promote peace, on grounds that the former relies on institutions to exist in the first place and the prospect of prosperity arising from economic interdependence again relies on pre-existing trade links (10). One then can see that, in the regional system that already does exist, the Soviet era trade connections would bind the two states together and promote prosperity. The issue, though, comes from the possibility that the Baltic states might find better prospects for economic growth by turning to side with European partners. Indeed, European partners that inhabit the same institutional space within NATO and the EU, as well as mutually being democracies. Economic interdependence thus provides shelter for the Baltic states in a European system that exists alongside the other two giants of liberalism: Institutionalism and Democratic Peace Theory. It is here that Russian posturing falls flat on its face, and structural concerns find greater footing.
The erosion of economic ties between Russia and its former soviet territories thus may prove to be the tipping point for Russian policymakers and the irredentist agenda that Moscow continues to pursue. After all, ethnic Russians still make up around 24% of Estonia’s population, 27% of Latvia’s and 5% of Lithuania’s. An offensive realist perspective, like what Mearsheimer might suggest is inevitable, highlights the obsessive drive of states to pursue security through confrontation. This confrontation comes in opportunistic waves wherein the stronger state, Russia, seizes upon periods of uncertainty and diffidence of the weaker states. This is echoed by Henry Kissinger, who in his historical analysis of Russian foreign policy has found that for centuries Moscow has looked favourably on expansionist behaviour, stating “security could be found only through exerting its absolute will over its neighbours” (11). Indeed, a persistent failure to exert itself sufficiently strongly in its region had resulted in multiple hostile invasions from the likes of the Mongols, Revolutionary France and Nazi Germany. A structural assessment of the geopolitical situation in the Baltic region raises questions concerning the “opportunism” of aggression from Russia. NATO still maintains a significant presence in the region, though one can doubt the commitment of a number of its member states. In fact, a recent YouGov poll revealed that in the UK, France, Germany, Denmark and Norway support for the alliance has fallen in the two years since 2017. Further, while the poll shows the United States remaining committed to the NATO framework, attitudes from the president seem to suggest otherwise with President Trump declaring NATO “obsolete” (12).
NATO’s ambivalence towards Russia alongside the corrosion of economic ties might prove enough to invite Russian aggression into the Baltics. This seems particularly likely given the dual factors of increased sanctions from the United States strangling Russian exports alongside Gazprom’s difficulty to expand into China (13). Energy diversification in the Baltic regions may prove beneficial in enhancing security and equity but may have the secondary consequence of isolating Russian exports and, as a result, exacerbate tensions further between the former Soviet republics and Russia. A dual-theoretical approach has shown that the erosion of economic ties might be a facilitator for the unleashing of neorealist structural power contentions in the region. This is of particular interest given the institutional difference between the two (one being inside the EU and NATO, and the other not) and the domestic differences (varying degrees of sympathy towards freedom and democracy). To ensure a smooth transition away from a reliance on Russian energy, the Baltics must seek to rejuvenate the commitment of their NATO allies as to dissuade aggression from Moscow. However, given current disputes over defence spending, and an irresolute leadership role from Washington, the political landscape in the region may soon be aggravated by accompanying economic upsets.
(8) Green, D. “Introduction to the English School in International Studies”. 2014 : https://onlinelibrary-wiley-com.ezproxy.st-andrews.ac.uk/doi/pdf/10.1002/9781118624722.ch0
(9) Martin Smith Power in the changing
(10)John Mearsheimer's "The Great Delusion" (2018) p192
(11) Henry Kissinger's "World Order" (2014) p52
(13)Strategic Survey 2017-2018 (IISS) p247
At the time of writing, Toby Irwin is a third year student at the University of St Andrews. He is studying International Relations. Areas that interest him the most are UK defence strategy and foreign policy.