Firstly, in the modern world, “geopolitics” exists where the economy does not. Russia would have no need to “attach” Germany to itself with an unprofitable pipeline if Russia were able to attract the world with excellent economic and scientific achievements. Russia would not need to fear sanctions from Germany, the European Union and the USA if, instead of hybrid wars, it implemented a sensible foreign policy. Secondly, it is precisely “geopolitics” that best justifies shady deals and economically disadvantageous projects. Geopolitics and shady deals in Russia are so closely linked that it is difficult to understand which of them is the chicken and which is the egg. Do we build unprofitable pipelines in order to be able to carry out hybrid wars, or do we carry out hybrid wars in order to subsequently justify the construction of unprofitable pipelines?

Yulia Latynina, Novaya Gazeta, 23 August

From the Kremlin’s point of view, the pipeline construction policy implemented by Gazprom is entirely correct. The main purpose of this policy is to reduce the dependence of Russian energy exports on transit countries, which increases delivery costs and often threatens their stability. Unfortunately for Russia, after the collapse of the USSR, its land “window” to Europe closed and major transport hubs ended up under the control of small, not particularly friendly sovereign states (for oil – Latvia, Lithuania and Belarus; for natural gas – Ukraine). The refusal to hand over transit companies, the increase in commission fees and, at times, the brazen misappropriation of resources by these countries were part of Russia's post-Soviet geopolitical reality. This was, of course, annoying, and, moreover, Western partners had also indicated that they were concerned about the security of supplies. Whatever the political rhetoric of the USSR and later Russia towards the West, it has positioned itself as a reliable Western partner in energy since the 1960s, and indeed, it has not failed until now. Therefore, since the late 1990s, Russia has been implementing a fundamentally new strategy for diverting export cargo to newly built domestic ports and new pipelines in the north and south.

Everyone understands well that Russia is more dependent on the West than the West is on Russia and that Russia can play the card of the West's conditional energy dependence only once – after that there will be no turning back. The West has real alternatives, but Russia currently does not really have any. Russia cannot afford a large-scale conflict with the West without risking total economic collapse. Interference in the election campaigns of other countries, the organisation of large-scale military exercises and the terrorising of neighbouring countries are just mischiefs not worth worrying about for long: the prevailing view is that these “mischiefs” are intended for domestic consumption, that Russia is not essentially ideologically hostile and that it currently has no expansionist goals. After all, the economic benefits outweigh the geopolitical risks, because Western Europe needs natural gas, and, moreover, the cheaper the better: this allows it to compete more successfully with US producers. In Europe itself, natural gas production volumes are declining, but demand is growing: according to estimates, in 2030, natural gas consumption in the European Union will reach 880 billion cubic metres instead of the current 550. Russia currently supplies 40% of this volume, which in turn is 90% of Russia's total natural gas exports.

Russia is developing gas exports in three directions: towards Germany along the Baltic Sea floor (Nord Stream), towards Turkey along the Black Sea floor (TurkStream) and towards China through Siberia (Power of Siberia). There are also plans to increase capacity for gas supplies through Belarus: unlike Ukraine, Belarus’s gas transport infrastructure belongs to Gazprom. Furthermore, in order to fully load the northern route, Gazprom must also build an additional overland gas pipeline across eastern Germany from the Baltic Sea to the Czech Republic. These and other projects, of course, require substantial investment: according to experts’ estimates, 93.4 billion US dollars (for comparison: in 2017, Gazprom’s total stock market value was 53.4 billion, while Russia’s GDP was 1579 billion). Although those implementing Nord Stream emphasise that it is a conceptually new natural gas supply route to increase supplies to Europe, Kremlin statements and real statistics point to the opposite: both Nord Stream and TurkStream are intended to bypass Ukraine. However, in spite of the Kremlin's rhetoric, Ukraine's role in the European gas market will remain significant. If consumption in Europe continues to grow as predicted, then the newly built “pipes” alone will not be enough to satisfy this demand. Moreover, there is no possibility in Northern Europe to store gas in such quantities as to balance supplies at moments of maximum demand. In this sense, Ukraine is indispensable because its capacity for natural gas storage is enormous. Abandoning transit through Ukraine will create serious risks of supply disruption. Angela Merkel expressed concern about this in a conversation with Vladimir Putin. It should also be taken into account that the efficiency of TurkStream will depend on Russia's relations with Turkey: although they have improved, facilitated by the autocratic leadership style of both countries’ leaders and their dislike of Western liberal values, the history of both countries and their differing interests in the Syrian conflict cast doubt on the sustainability of the friendship established.

Yulia Latynina’s reproaches that Russia is creating inefficient solutions for expanding natural gas supplies to Western markets are understandable from the Baltic and Ukrainian point of view, but from the Western perspective they are not really justified: the more developed the infrastructure, the more flexible the market, the greater the choice for consumers. It is not for nothing that the leaders of three Western countries – Germany, the Netherlands and France – participated in the opening of the first pipeline stage of Nord Stream. Europe’s growing dependence on Russian natural gas leads one to think about alternatives, but fears that Russia could use energy resources to impose its will on Western democracies are exaggerated. As already noted, in Russia’s case, rhetoric is one thing, real deeds are another. For democracies, such a contradiction is difficult to understand, but in our neighbouring country it is a completely normal phenomenon. Moreover, the time when Russia believed that supplying cheap resources would ensure the loyalty of post-Soviet states has passed, and Russia is now building relations with these countries guided by the ruthless laws of the market.

Another question: will Russia ever be able to recoup its investment? Opinions on this issue differ. Be that as it may, in the face of geopolitical considerations, economic efficiency considerations lose their meaning, that is, geopolitical interests dictate what is economically advantageous and what is not. True, Russia could have saved several tens of billions by investing in the existing infrastructure in Ukraine. However, that would require normalising relations with this country, which, in the eyes of Russian ultranationalists, is a territory “without independent geopolitical significance”. The refusal to cooperate with Ukraine is a geopolitical choice, the price of which is these several tens of billions of dollars. But can things like state power independence and freedom of action be valued in monetary terms? Gazprom could have saved several more tens of billions if it had implemented construction – including domestically – in an equal partnership with Western companies. Foreign capital is being attracted, but mainly in the form of loans, meaning that Gazprom as the sole beneficiary assumes all the financial risk. Is this a geopolitical choice? Most likely not. It is no secret that state-controlled companies are more convenient, not only to prevent adverse foreign influence, but also to ensure shady deals for the political elite. In Russia, the boundaries between the state and business are so blurred that separating one from the other is practically impossible. Here, the rule of law is intended only for the lower strata and property rights are of relative importance: everything is determined by good personal connections and loyalty to the vertical of power. In Russia’s case, it is more accurate to say that everything there still belongs to the state, but the most profitable parts of this property have been handed over to certain privileged individuals for indefinite use. However, for this use, one must pay “rent” to prop up the vertical of power, including for the implementation of megalomaniacal projects, such as the winter Olympic centre in Sochi and large-scale military manoeuvres. Something like this would not be possible in companies with Western capital: the Sergei Magnitsky scandal clearly demonstrated this to Russia.

After the completion of Nord Stream, Germany will become the European distribution centre for Russian gas. This raises questions about the future dynamics of German-Russian relations and their impact on other European countries. Can Russia really succeed in taming Germany to such an extent that it will not object to Russia's further aggression in Ukraine, nor the potential annexation of Belarus, as predicted by Yulia Latynina, nor the reordering of the Baltic states, which we ourselves are so worried about? The German-Russian cooperation also has a broader context, namely: how successful and morally justifiable can deep economic integration be between countries that have different political views on issues of human rights, the rule of law and democratic institutions? Henry Kissinger saw the greatest threat to the US and the world liberal order precisely in the close cooperation between Russia and Germany after the collapse of the USSR. In Kissinger’s view, after reunification, Germany became so strong that existing European institutions were not able to balance its influence on other European countries, and moreover, Europe, including Germany, without US involvement is not capable of restraining Russia with its enormous military potential, vast territories and still-alive imperialist ambitions. Europe saw well the power of a Russo-German alliance nearly 80 years ago. And today, Germany has what Russia lacks – capital and technology; meanwhile, Russia has what Germany lacks – resources.

In the aftermath of the Second World War, Germany “shrunk” to a normal nation-state. It has accepted blame for the victims of the war and is atoning for it by enthusiastically engaging in the European integration project and building special relations with former victim countries, primarily Poland and Russia. In the German understanding, Russia is not an enemy. Germany will always be grateful to Russia for accepting German reunification (it must be remembered that this idea did not exactly arouse enthusiasm in the capitals of France and Great Britain). The USSR's responsibility for the violence committed by the Red Army against civilians, the division of Germany and the establishment of a totalitarian puppet state in East Germany after the Second World War concerns Germans little today: it was supposedly a deserved humiliation. Today, Germany is undeniably the most important object and subject of the European integration process at the same time. Despite the European sentiment prevailing there, Germany in a way embodies significant threats to the successful functioning of the EU. The troubles of the eurozone and later the asylum seeker crisis showed this well. The thing is that in a situation where European institutions are unable to dictate the agenda, the role of crisis management must be assumed by one of the member states. Germany has done so, but guided by narrowly domestic political interests, without delving into what consequences this will have for other member states and the union as a whole. Germany does not want to assume the role of European hegemon, because that would mean it has to return to geopolitical thinking – a thing from which Germany has distanced itself for so long. Germany is not politically ready for such a step, so the European Union risks remaining a hostage to Germany's internal socio-economic processes in the future as well.

Russia is Germany's opposite. Unlike the successors to the other three great European empires – Austria, Turkey and Germany – Russia has not come to terms with nation-state status. Russians still believe in the mythical providence of the nation and its leaders: this spiritual imperative surpasses secular imperatives, making the search for reality and truth a dangerous occupation and cancelling the need to follow the law. Such a state of consciousness undoubtedly increases the feeling of national vitality in the face of the decadent and self-absorbed West. It must be admitted that such romantic authenticity is able to captivate not only Russians, but also all kinds of radicals in Europe. And, as confirmed by former German Chancellor Gerhard Schröder, who has now become the chairman of the board of the Russian energy giant Rosneft, one does not even have to be a radical to feel comfortable at the top of Russia's political business. The German political and business elite – unlike those of the USA and Great Britain – is not so intolerant of Russia’s escapades. So to speak, better Putin and the siloviki clique than ultranationalists with Zhirinovsky and Dugin at the helm. Conversely, from the Russian perspective, Germany, unlike the little states of the former Soviet empire, is a respected and stable partner. Russia also has an extensive “agency” in Germany – former East German secret service Stasi employees, who hold senior positions in the subsidiaries of Russian companies, which is also not unimportant.

What is in all this for Latvia? Geopolitics is usually the prerogative of large countries, but it is not as if small countries have no geopolitical interests. Situated between Russia and the sea in one direction and between the Nordic Estonia and the Central European-oriented Lithuania in the opposite direction, being the only true carrier of Baltic identity, Latvia primarily affirms its interest in the deep integration of all three Baltic states. Latvia is no longer part of what was called the European “sanitary cordon” before the Second World War – a strip of countries from the North to the South of the continent that separated the West from the East. Currently, this role is assigned to Belarus, Ukraine and Moldova: as long as these countries live, even if autocratic and corrupt, Latvia faces no direct danger. The modern liberal international conjuncture gives small countries the opportunity to exist successfully, therefore one must ensure that this liberal order continues to exist. However friendly Germany and the USA may be to Latvia, the opinion of large countries can change rapidly, and Latvia will not be able to do much about it. However, as history teaches, the international conjuncture is also changeable, so relying solely on international institutions may turn out to be a fatal mistake: geopolitical logic dictates that it is high time for Latvia to think about strengthening its domestic law enforcement, civil and military institutions.

Although small countries are unable to dictate the rules, endowed with creativity, luck and a little cheekiness, they are often able to compete quite well with large countries. Luxembourg and Ireland are good examples of this. It seems that Latvia is also quite good at it. Despite the unfriendly official rhetoric, trade and investment statistics show that Russia is still an important business partner for Latvia. Moreover, it is visible that business sectors in Latvia and Russia are not competing, but complementing each other. The only thing is that this economic cooperation is based not on stable legal relations, but, in the best traditions of Soviet times, on backroom deals. If the arrest of the head of Latvia's national railway company can lead to a cardinal drop in railway cargo turnover, then that is not normal. Making the national currency exchange rate issue a matter of national security, as was experienced ten years ago, was also not sensible. Recent events in the banking sector suggest that the massive money laundering of Eastern money here was not just the arbitrariness of commercial banks, but business with a political umbrella, and, if so, it is very possible that the formation of national currency exchange rate policy did not serve only state goals and that the economic cataclysms experienced were not the result only of stupidity and poor coordination of macroeconomic policies. The court cases expected in the near future promise valuable material for reflection, including on the connection of “geopolitics” with shady deals in Latvia as well. News that has just appeared about Latvia’s involvement in drug smuggling from Latin America to Russia makes this vector of thought even more fascinating. Geopolitics can indeed be a profitable business.
The article was first published in the October 2018 issue of the magazine "Rīgas Laiks"