Ukraine-Baltic Energy Cooperation in the Context of Russian Hybrid Aggression

Ukraine-Baltic Energy Cooperation in the Context of Russian Hybrid Aggression

By Iryna Zaporizka in Policy | January 21, 2021

This article provided by our Ukrainian partners, Ad Astra

Despite being different in so many aspects, Ukraine and the Baltic states have always had a lot of things in common, the main one being a troublesome neighbor on the eastern border that we all have to deal with.

The dissolution of the Soviet Union opened a new era in Russian foreign policy towards the territories that are or were once perceived as a part of the sphere of influence of the former geopolitical empire. During the past 30 years the instruments of Russian foreign policy have transformed to better serve its regional interests. Although armed conflicts like those evolving as a result of Russian aggression in Georgia in 2008 and Ukraine in 2014 can still be found almost in every post-Soviet republic, Russian policy has in general become more complex and now includes specific elements like economic control and soft power influence. One of such instruments is Moscow’s energy diplomacy.

The Russian Federation is one of the world leaders in hydrocarbon reserves: 60 billion barrels of oil (in some years ahead of the Saudi Arabia in production, though Russia is still unable to export as much as Aramco) and first place in natural gas reserves make Russia one of the top actors on world energy market. Moscow exports hydrocarbons mainly to former Soviet republics, EU countries and Turkey.

For the Russian Federation, the oil and gas sector is important in two ways: first, in terms of economic value, it is one of the main articles of revenues to the federal budget; second, in terms of Russian political ambitions, energy diplomacy has gradually become one of the country’s main instruments to maintain control over neighboring states.

Today both Ukraine and the Baltics remain dependent on Russian natural gas either as the primary consumers or, in the Ukrainian case, as an importer of natural gas via virtual reverse-flow from Poland or Slovakia, though the gas is still, physically, Russian. As it is important for Moscow to keep post-Soviet and European countries directly dependent on energy exports, Russia started to implement “gas aggression” tactics at the beginning of the 21st century, the most vivid example of which is seen in Ukraine-Russia relations. For instance, in 2006 Russia cut off gas supplies and reduced its transit through Ukrainian territory to the EU. In 2009 Moscow had a more global goal, in particular to intensify the political conflict in Ukraine by completely cutting off gas supplies (for both domestic consumption and transit to the EU), which should have formed the idea of Ukraine as an unreliable gas transit country to Europe. Since gaining independence, the blackmail from Moscow to cut off gas flow has become a beloved method of our eastern neighbor, which is often used to extrapolate its political will on Kyiv.

Moreover, since independence, Ukraine has not only experienced several “gas wars” with Russia but has also been in a situation when it had to constantly ask for a reduction in gas prices. This is illustrated, in particular, by the Kharkiv Agreements signed by Viktor Yanukovych in 2010, when the price of gas was reduced by 30 percent in exchange for the extension of the Black Sea Fleet’s stay in Sevastopol for another 25 years from 2017.

The Baltics’ situation is very similar to that of Ukraine. Despite joining European Union and NATO in 2004, as well as engaging in European energy strategies, getting rid of dependence on Russian gas imports remains a primary goal for Lithuania, Latvia, and Estonia. Due to the fact that the Baltics inherited energy infrastructure from the USSR, after the restoration of independence the countries found themself in a situation where they were forced to continue buying Russian hydrocarbons, and, what is more, for one of the highest prices among the European states. Furthermore, an important factor was the high share of domestic gas companies owned by the Russian company Gazprom (at some point the share reached 37 percent in Eesti Gaas, 34 percent in Latvias Gāze and 37 percent in Lietuvos Dujo, although after 2014 these figures decreased significantly), which allowed Russia to influence the energy policy and strategy of the Baltic states.

he Baltic States, as well as Ukraine, have experienced several “gas wars” with Russia. The direct cut off of gas supply, however, has not taken place but once, when in 1993 Estonia refused to grant direct citizenship to all the people living in the country after the dissolution of the Soviet Union. Nevertheless, gas related blackmail is still common in Russo-Baltic relations, especially in the context of Moscow willing to “protect” the Russian-speaking minority rights in the Baltic republics.

Another example of Moscow’s energy diplomacy is Ukraine’s dependence on the transit of Russian gas to Europe. On the one hand, the revenues from gas transit are important for the Ukrainian state budget. However, as Moscow seeks to maintain its position as one of the leading suppliers of natural gas to Europe, it also realizes the interdependence of the two parties in this question. Though Russia is purposely limiting gas transit from countries like Turkmenistan or Kazakhstan to reduce the number of gas importers to the European market, it still has to negotiate with Kyiv as the capacity of Ukrainian pipelines remains the largest to provide natural gas transmission from East to West. Russia tries to develop new projects to reduce the role of Ukraine as the gas supply route in the future. As a result, the construction of Nord Stream 1 and 2, as well as TurkStream began.

In this context, Lithuania, Latvia and Estonia have repeatedly expressed unity in issues regarding the threats posed by the construction of Nord Stream 2 for Europe’s energy security, thus emphasizing the importance of countering Russia’s attempts to make European countries dependent on Russian hydrocarbons import.

From this point of view, it is absolutely clear that Russian energy diplomacy has become not only about economic benefits, but about expanding its political influence in neighboring countries. The tactic is rather transparent: the reduction of gas prices may come in exchange for concessions on military or political issues that are of great importance to Moscow; otherwise there is constant pressure that the countries have to live under.

Considering all the challenges mentioned above, along with the facts of Russian hybrid aggression, we believe that cooperation between Ukraine on one side and Lithuania, Latvia and Estonia on the other can lay a strong foundation for a new energy security system in the Baltic-Black Sea region. If the diplomatic and economic ties between Ukraine and the Baltics continue to evolve, our countries have all the prospects for strengthening their energy security and gaining independence from Russian influence. Likewise, acting as a single front, our countries have all the chances to raise their geopolitical status and finally come out of the geopolitical periphery, which bears even more opportunities for future economic growth.

Speaking about a specific plan for cooperation, it is worth mentioning that the Baltic republics have already implemented several projects in the energy security area, the largest of them being the LNG terminal in the Lithuanian port of Klaipėda, which began operating in December 2014. At the opening ceremony, former Lithuanian President Dalia Grybauskaitė stated, “From now on, nobody will be able to dictate the price of gas to us or buy our political will, or bribe our politicians.” The Klaipėda terminal allowed Lithuania to import more hydrocarbons from Norway than from Russia for the first time in 2016. In addition, in the long run it has the potential to secure gas supplies to all the Baltic republics, as well as to neighboring countries such as Belarus, Poland and Ukraine.

In recent years, a number of other projects increased significantly, aiming to fully integrate the Baltic states into the European energy system. For example, in 2020, the Balticconnector pipeline was launched, connecting the Estonian city of Paldiski with the Finnish city of Ingå. Also, GIPL (Gas Interconnection Poland-Lithuania) is projected to be ready for operation by the end of 2021.

This experience can be useful for Ukraine not only in considering the project of an LNG terminal in the port of Odesa or connecting to the Trans-Anatolian Natural Gas Pipeline (TANAP) to export hydrocarbons from the Southern Caucasus countries, mainly Azerbaijan. What is more important, Ukraine and the Baltic states can promote North-South cooperation in the Baltic-Black Sea region to strengthen energy security, which is one of the main goals on Europe’s agenda nowadays.

We can see that some concrete mechanisms of cooperation between our countries have already been established over the past several years. For instance, we can mention the initiative of the Lublin Triangle (Ukraine, Poland, and Lithuania), the purpose of which is to support Ukraine’s EU integration but also to strengthen the regional military and economic system, including decreasing dependence on Russia in all areas.

Nonetheless, the concrete steps to develop our ties in the energy sector are far more necessary than the politicians’ words. The most remarkable project that is widely spoken about is connecting the LNG terminal at Klaipėda in Lithuania with Western Ukraine’s gas transmission system. At the beginning of 2020, Minsk reached an agreement with Vilnius to start oil exports via Baltic ports to reduce dependency on Moscow. As the Minsk-Vilnius Gas Transmission Pipeline has already been built to connect Klaipėda LNG Terminal and Lithuania distribution systems with the territory of Belarus, extending it to Ukraine might be only a matter of time, money, and political will.

At the same time, considering such an opportunity, we cannot fail to mention the obvious difficulties. First, the Lithuania-Belarus-Ukraine common project has never been proposed before, thus the pre-construction phase (political consultations and project development) as well as the construction itself would be a matter of several years or more. Second, remembering the latest events in Belarus and the fact that neither Lithuania nor Ukraine recognized the stated results of the 2020 elections together with the renewed sanctions from Western countries, cooperation with Minsk could be a problem for both Vilnius and Kyiv that might not be solved in the nearest future due to the political complexity of the situation.

With all that said, we cannot deny that the “Ukraine-Baltic” geopolitical axis can balance Moscow’s growing influence in Europe, especially considering the renewing Russo-German and Russo-French cooperation over the past couple of years. As a result of increased Ukraine-Baltic cooperation, not only will the regional stability be secured, but this will also promote the East-West constructive dialogue in the framework of Ukrainian integration to the EU. Moreover, this would strengthen the role of Ukraine as a reliable gas transit country not only in the East-West direction but, in the framework of the Baltic-Black Sea countries cooperation and the new hydrocarbons transmission systems being built, as a strong partner to provide gas transportation along the North-South axis.

So, to summarize the points stated above, we can mention two main areas as the prospects for Ukraine-Baltic energy cooperation:

connecting the gas supply infrastructure between the Baltic States and Central and Eastern Europe within the framework of the North-South Energy Corridor project along the North-South axis; the proposed project is to build Ukraine-Belarus interconnection to enable hydrocarbons imports mainly from Norway through the port of Klaipėda in Lithuania, which would also strengthen the role of Ukraine as a transit country for gas transmission along East-West and North-South axis;

and ensuring the possibility of obtaining new partners to balance Russian influence and diversify hydrocarbons import sources; this cooperation might be established with the North Sea countries from the Baltics’ side, and relations with the Central Asian states can be strengthened to import hydrocarbons through Ukraine (primarily from Kazakhstan).

Cover photo: Ukrainian gas transmission infrastructure Credit

By Iryna Zaporizka, Senior Fellow of the Ukrainian foreign policy think tank ADASTRA