Institute of Central Europe
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Shelters in Lithuania. Catching up

Over the last two years, due to the ongoing Russian-Ukrainian war, Lithuania has amended the law on crisis management and civil protection. A review of existing collective protection facilities was carried out and activities to create new shelters were intensified. The current infrastructure, adapted to provide temporary protection for the population in times of emergency or war, allows the guarantee of safety for approximately 30% of all Lithuanian inhabitants.

Insufficient collective protection infrastructure in Lithuania. Even though legal acts on civil security in Lithuania stipulated that all municipalities should have collective protection facilities that could be used in crisis situations, in 2018, out of 60 municipalities (districts), only 9 had such buildings, and 35 had shelters that met the established requirements only partially. At the beginning of February 2022, the State Audit Office (Valstybės kontrolė), the key audit institution in the country, prepared a report for 2018-2020, assessing the readiness of the public institutions for effective crisis management (Valstybinio audito ataskaita institucijų pasirengimas reaguoti į extremeliąsias situacijas). The document revealed that not all audited institutions were adequately prepared for possible threats. There was a lack of clarity regarding their competencies and responsibilities as well as relevant legal regulations. Moreover, interinstitutional cooperation and coordination of activities were insufficient, and any threat and risk assessment was underdeveloped. After analysing data from six selected municipalities in Lithuania regarding collective protection facilities, it was found that four of them did not provide adequate infrastructure in the event of emergencies. During that period, the location and size of hiding places were determined on the basis of the sum of 10% of the number of inhabitants of a given municipality, the number of children under 7 years of age, and the number of disabled people.

Legal changes. After the outbreak of the full-scale Russian-Ukrainian war, the applicable regulations were revised and actions were taken to develop protective infrastructure. On 29 December 2023, the Act on Crisis Management and Civil Protection (Lietuvos Respublikos krizių valdymo ir civilinės saugos įstatymas) entered into force, which defined the rules for preventing, managing, and removing the consequences of crises and emergency situations. It was established that public institutions and economic entities are obliged to provide municipalities with information about facilities and premises that may serve as shelters. These entities were also obliged to provide the hiding places free of charge in the case of a threat. After numerous consultations with representatives of local governments, civil protection experts, and military specialists, and after reviewing international practice, on 28 February 2024, the Ministry of the Environment issued a regulation on the requirements for the design and construction of collective protection facilities (Dėl statybos techninio reglamento STR 2.07.02:2024 “Slėptuvės, kolektyvinės apsaugos statinio ir priedangos projektavimo ir įrengimo reikalavimai” patvirtinimo), covering buildings whose purpose is to ensure the durability of the functioning of the state in a situation of military aggression, including buildings of state institutions, hospitals, and state-owned enterprises of strategic importance. Additionally, an obligation was introduced to design and install shelters in all newly constructed public buildings intended for more than one hundred people and in multi-story residential buildings (over 5 floors). Requirements were specified regarding the strength of the structure, materials, room size (1.5 sqm per person), the minimum number of persons protected (60% of the institution’s users or residents in the case of a residential building), and engineering systems (such as heating, ventilation, electronic communications, water supply and sewage installations, electrical systems, and others). The exception is buildings intended for religious purposes, where shelters must be designed in their underground construction and the rooms must be publicly accessible. The agreement, signed by the Ministry of Interior and the Catholic Church in Lithuania, provides for public education and the adaptation of religious buildings for civilian purposes in crisis situations (as of September 2023, 10 churches in Lithuania could perform such functions). Church buildings can also be used to install warning devices.

In mid-2023, the rules managing technical standards for the construction and use of shelters were amended to clarify the conditions and raise the requirements for the construction of these facilities. For example, in relation to the 2010 law on civil protection, the minimum number of inhabitants to whom protective infrastructure should be provided has been increased. Now it is determined based on the sum of 25% of the population of a given municipality, the number of children under 7, the number of elderly people covered by social care, and the number of disabled people living in a given municipality. Additionally, the state institutions such as the Parliament, ministries, state security services, border guards, police and others, are to have shelters. The time to reach the nearest collective security facility should be 5 to 7 minutes from the alarm signal. According to the current law, municipalities are responsible for the selection, marking, and preparation of shelters, and the activities are coordinated by the Department of Fire Protection and Rescue at the Ministry of Interior.

Plans to expand the shelter system. Currently, Lithuanian legislation distinguishes between shelters, which are special-purpose facilities intended to protect the population in times of emergency or war, and collective protection buildings such as schools, kindergartens, and cultural and sports centres, which perform public functions on a daily basis, but in case of danger, can be adapted as a temporary shelter for residents. According to estimates of the Ministry of Interior, the current civil protection infrastructure covers a total of over 3.3 thousand shelters that can accommodate 912,000 inhabitants of Lithuania, which constitutes 31% of the population. The government also wants to expand buildings that serve a protective function during threats, so that 60% of residents of urban municipalities and 40% of other districts have access to protective infrastructure. So far, only 12 municipalities in Lithuania have achieved this level[1], but a dozen or so [more] municipalities are already approaching the set level. The Ministry of Interior announced that the relevant services will soon inspect all such hiding places and assess their condition.

Conclusions. Before Russia’s full-scale attack on Ukraine, the development of collective protection infrastructure was not a priority in Lithuania’s security policy, but the war intensified the government’s activities in this area (ICE Commentaries No. 871, ICE Commentaries No. 1074). The law was amended and projects related to the construction and modernization of the existing civil security infrastructure were initiated. Currently, only some local governments have facilities that meet the designated standards, but the Department of Fire Protection and Rescue emphasises that Lithuania is a leader in the development of shelters among the Baltic states. Over the last two years, the number and availability of shelters have increased by almost half; in 2022, there were 1.8 thousand such facilities to protect approximately half a million citizens or 17% of the population.

Currently, the main challenge is to create new buildings and adapt existing ones for the protection of civilians. Therefore, further actions are necessary to finance part of the renovation and construction works. Challenges also include insufficient access of citizens to information on both procedures during crisis situations and the location of shelters. Therefore, it is crucial to strengthen the public information system (e.g., website lt72.lt) as well as to further improve the competencies of not only officers but also residents in the field of civil protection.

The state plays a fundamental role by shaping the legal framework, identifying potential threats and developing the infrastructure necessary to prevent and manage them. However, it is equally important to build a strong civil society in which each resident has the necessary knowledge and skills to act effectively in crisis situations.

 

[1] In the southern part of Lithuania – Birštonas and Druskininkai regions; in the south-west – Vilkaviškis district; in the western part – the Šilalė, Šakiai, and Pagėgiai districts; in the central part – the Raseiniai, Kazlų Rūda, Kaišiadorys, Prienai, Kėdainiai, and Kaunas districts. Alla of these are district municipalities.

The case of Valerii Zaluzhnyi – a symptom of growing political tensions in Ukraine

The dismissal from the post of commander-in-chief of General Valerii Zaluzhnyi, very popular in Ukrainian society and the armed forces, caused a great stir, which was then intensified by the information that he was appointed ambassador to Great Britain. In Ukraine, it is widely believed that Zaluzhnyi’s dismissal was the result of concerns of President Volodymyr Zelenskyy and his entourage related to the General’s popularity and authority. Such actions by the authorities indicate an intensifying political struggle and, at the same time, may result in the deterioration of both the social mood and the morale of the army.

The “Iron General”. Valerii Zaluzhnyi is currently the most popular public figure in Ukraine. In February 2024, 94% of respondents declared their trust in him – in all regions of Ukraine, which is an unprecedented situation, especially against the background of generally limited trust in the political elites. His charismatic personality, modesty, command style, competence, personal commitment, and attitude towards soldiers, fundamentally different from the characteristics and behaviour of generals with Soviet origins, made him extremely popular in the army and made him almost a pop culture icon in the public perception.

Zaluzhnyi was born in 1973 in Novohrad-Volynskyi (in 2022, the city’s historical name Zviahel was restored) and received both a military education (land forces school, general staff academy) and a general academic education (international relations). He went through all the levels of the military during his career, in 2014-15 he participated in combat in the east of the country, and finally, in 2021, he took over the position of commander-in-chief of the Armed Forces of Ukraine. Under his command, the Ukrainian army began preparations to defend against the Russian invasion long before 24 February 2022, ignoring the calming voices of politicians, including President Zelenskyy, who were afraid of a possible panic and its consequences for the economy, e.g., the outflow of foreign investments (this attitude is currently widely criticized).
In the initial phase of the war, Zaluzhnyi became famous for, among other things, strong opposition to plans to blow up bridges on the Dnieper. These plans were intended to stop the Russian advance on Kyiv, but in fact, they reflected the panic that prevailed among Ukrainian elites in the first days of the invasion. During the war, Zaluzhnyi gained authority not only in the country and among Western military officials and analysts but also in the eyes of the Russians, who initially disregarded him.
Relations with President Zelenskyy and dismissal from office. Rumours of differences between the commander-in-chief and the president appeared already in 2022, and they intensified significantly during the battles for Bakhmut in 2023. Zelenskyy expected the army to achieve success on the front, which would make it easier to obtain Western help, whereas Zaluzhnyi took a balanced stance, being better aware of the actual military situation. He also expressed restraint on the issue of mobilization, questioning the possibility of calling up half a million soldiers but emphasising the need for urgent action to increase the size of the army and enable the rotation of front-line units.
The General also shared his opinions on the course and prospects of the war with influential Western media, including: “The Economist”, “Politico”, and CNN (“IEŚ Commentaries”, No. 1006). As a result, this led to an escalation of tension in relations with Zelenskyy and his entourage, which as early as 2022 began to look for political motivation and ambition in Zaluznyi’s actions as well as to criticize his media activity. The General’s level of popularity also raised such concerns in the Office of the President. They were additionally fuelled by both Zelenskyy’s internal political opponents and Russian propaganda, trying to bring Zaluzhnyi into conflict with the president. Gradually, the media began to report more and more often about their tense relationship. On 5 March 2024, after the dismissal of General Zaluzhnyi from the position of commander-in-chief, the results of a poll were published according to which possible presidential elections would end with a decisive victory for Zaluzhnyi.
Taking into account the deepening differences between the president and the commander-in-chief, Zaluzhnyi’s dismissal was expected at the end of 2023; there had already been numerous rumours, e.g., regarding Zelenskyy’s alleged request for Zaluzhnyi to leave himself – which he allegedly refused. Ultimately, his dismissal took place on 8 February 2024, but it took place in a calm atmosphere, without unnecessary and emotional comments, and with mutual thanks. A day later, Zaluzhnyi was honoured with the title of Hero of Ukraine. This restrained behaviour on Zelenskyy’s part was probably influenced by Zaluzhnyi’s popularity in society – in December 2023, only 2% of Ukrainians were in favour of his release from duty, while 72% of respondents were of the opposite opinion. Less than a month later, on March 7, President Zelenskyy announced that Valerii Zaluzhnyi was to be Ukraine’s new ambassador to the UK.

The command of the Ukrainian army was taken over by Colonel General Oleksandr Syrskyi, an experienced soldier who had been participating in hostilities since 2014. It is emphasised that he commanded the operations to defend Kyiv and liberate Kharkiv (along with Kyrylo Budanov, he was mentioned as Zaluzhnyi’s successor). Syrskyi is a widely unknown figure. He was born in 1965 in the Russian Socialist Republic of the Soviet Union, where his father, a retired army colonel, still lives. In the 1980s, he received a military education in Moscow and served in the Soviet Army. Although the Ukrainian media is reluctant to write about it, soldiers unofficially call him “General 200”[1] or the “Bakhmut butcher”, accusing him of a tendency not to take losses into account. The Russian media describe him contemptuously, suggesting that he intends to lead the surrender of the Ukrainian army, which would not have been allowed by Zaluzhnyi, who was dismissed at the behest of “Western sponsors”, who were allegedly trying to reach an agreement with Russia.

Reactions to the dismissal of the commander-in-chief. General Zaluzhnyi did not officially comment on his removal. He was probably aware that any comments from him could be dangerous for the country at war: they would question the decisions and authority of the highest state authorities, and they would contribute to an increase in tensions and divisions in society and the army, further worsening the mood and morale, and finally – they would serve Russian propaganda. However, the public discourse is dominated by the belief that Zaluzhnyi has become a victim of his own popularity, which has turned the commander-in-chief of the armed forces into a political competitor from the point of view of the President’s Office and Zelenskyy himself (even though the General has not personally expressed such ambitions). The differences of opinion between Zelenskyy and Zaluzhnyi are emphasised as well as the General’s statements to Western media, which in the eyes of the presidential circle are intended to confirm his ambitions to play a greater role in the state. There are many opinions that after the failed Ukrainian counteroffensive, the authorities needed a “scapegoat”. There are quite marginal opinions that a change in the position of commander-in-chief was necessary because the situation on the front has changed, which requires a new approach and concept of conducting the war.
Conclusions. The background, motives, and conditions for General Zaluzhnyi’s dismissal from his position remain largely in the realm of conjecture and speculation. According to media reports, in early 2024, Zaluzhnyi was to be recognized by a medical commission as unfit for service under combat conditions. Then, after being released from his position, he placed himself at the disposal of the Minister of Defence and, having not received any assignment, asked to be released from service. This caused a wave of comments, including those accusing the presidential office of treating the General unbecomingly. According to various opinions, he also either rejected offers of diplomatic positions or, on the contrary, asked for them.
Regardless of any speculation, there is no doubt that the Office of the President is behind the decision to dismiss Zaluzhyi from the position of commander-in-chief. The Office of the President (and not the Ministry of Foreign Affairs) is also responsible for the decision to nominate him as ambassador to Great Britain. This is further proof of the growing political frictions in Ukraine as well as the growing importance and influence of the Office of the President of Ukraine, which has in fact dominated and marginalized both the government and the parliament.
Sending Zaluzhnyi to Great Britain may, objectively, bring tangible benefits to Ukraine. London is one of the key Western political centres, the General is recognizable there, and he enjoys a good reputation, which may be useful from the point of view of Ukraine’s interests. However, it also proves Zelenskyy’s determination to get rid of political rivals, even jaust potential challengers. Especially since the president can easily dismiss the ambassador, as he unexpectedly did in July 2023 with Vadym Prystaiko, at the time the ambassador in London.
Zaluzhnyi’s situation can also be treated as a disturbing symptom of the breakdown of the previously respected social contract, which assumed the separation of current politics from the issue of conducting military operations. This may translate into a deterioration of both the public mood and the morale of the army – especially since the new commander-in-chief does not enjoy its trust.
At the same time, however, it cannot be ruled out that Valerii Zaluzhnyi, regardless of whether he takes up the post in London or not, will actually appear as an important figure on the Ukrainian political scene. Given his popularity and authority, he may even successfully run in the presidential elections (it is unlikely though that they will take place in the near future). However, it is highly probable that various groups will try to use the General’s popularity for their own political purposes.

[1] From the term “Cargo 200” (Груз 200), meaning the transport of the body of a fallen soldier.

Valerii Zaluzhnyi: Future Diplomat or Politician?

On 7 March 2024, President Volodymyr Zelensky announced the candidacy of former Commander-in-Chief of the Armed Forces of Ukraine (AFU) Valerii Zaluzhnyi for the vacant post of Extraordinary and Plenipotentiary Ambassador of Ukraine to the United Kingdom of Great Britain and Northern Ireland. Following the president’s announcement, Foreign Minister Dmytro Kuleba confirmed that the relevant application had been sent to the British side. It should be noted that the appointment of the new head of the Ukrainian diplomatic mission violated the standard procedure for the public announcement of the appointment of an ambassador, which requires first obtaining agrément (the official consent of the host state of the new head of mission). Zaluzhnyi has neither confirmed nor denied his appointment thus far.

Many experts, diplomats, and representatives of opposition parties (especially those close to the chairman of the European Solidarity party Petro Poroshenko) perceived the proposal to appoint Zaluzhnyi as political ostracism and an attempt to get rid of a possible political rival. According to this narrative, the authorities aim not only to limit Zaluzhnyi’s presence in the media space but also to remove him from the political life of the country.

Comments

– Valerii Zaluzhnyi has shown himself to be an effective Commander-in-Chief of the AFU and has gained a high level of popularity and trust among the Ukrainian public (reaching a confidence level of 94% in February 2024). Certain political forces, including the European Solidarity party and some Maidan-era politicians like Yuriy Lutsenko, would like to stage Zaluzhnyi’s candidacy in the presidential elections, as he currently has the best chance of winning. However, Zaluzhnyi himself has not publicly expressed such ambitions.

– Volodymyr Zelensky’s statement regarding Zaluzhnyi’s appointment as ambassador to the United Kingdom can be seen as a kind of manipulation, dictated by the desire to eliminate a political rival. The way in which the nomination was announced indicates that the Ukrainian authorities are very keen that Zaluzhnyi does not reject the proposal. It is worth emphasising that the President’s announcement was preceded by: (1) the publication of a poll by the SOCIS Centre for Social and Marketing Research, which showed that in future presidential elections, Zaluzhnyi would defeat Zelensky with 41.4% in the first round and 67.5% in the second round; and (2) rumours of possible criminal cases against the former AFU commander-in-chief. Consequently, Zaluzhnyi’s appointment as ambassador can be perceived as a political decision.

– To some extent, this nomination can be seen as mutually beneficial. On the one hand, the president eliminates a political opponent, while on the other hand, Zaluzhnyi would avoid image losses related to future problems on the front and in the state. In addition, after going to London, he would not only be able to expand his international contacts and gain political experience but also remain publicly visible.

– If Zaluzhnyi becomes ambassador, he would serve within the structures of the Ministry of Foreign Affairs, but not at the highest levels. The Ukrainian authorities would undoubtedly try to control his statements and actions through the internal apparatus, security officers, or the military mission at the embassy. In this situation, Zaluzhnyi’s entourage would face the task of protecting him as a politician and ensuring his presence in the Ukrainian media space. Another potential threat is the possibility of provocations by the Russian ‘fifth column’ in London, which could endanger the personal security of Zaluzhnyi and his family. Currently, the Ukrainian embassy does not have the capacity to provide effective security for the ambassador in the host country.

– However, it is likely that Valerii Zaluzhnyi will refuse the appointment. This, in turn, could increase the political turbulence in the country as a result of the escalating parliamentary crisis and the fact that incumbent President Volodymyr Zelensky’s five-year term expires in May 2024.

[Zdj. GLEB GARANICH / Reuters / Forum]

Lukoil plans to sell its refinery in Bulgaria

For years, companies from the Russian Federation have been acquiring attractive energy assets around the world, including in Central European countries. The introduction of EU sanctions following Russia’s full-scale aggression against Ukraine has restricted the operations of some of these companies. This is the situation with the Burgas refinery in Bulgaria, owned by the Russian company Lukoil. The company is currently looking for a buyer willing to purchase these assets, with companies from Azerbaijan and Kazakhstan among those in the circle of interest. The government in Sofia is also raising the issue internationally.

Characteristics of the Burgas refinery. Bulgaria has one refinery in Burgas, owned by the Russian oil company Lukoil through Lukoil Neftohim Burgas. It is the largest (a capacity of 196,000 barrels per day) and most modern plant of its kind in the Balkans. The Burgas refinery supplies the domestic and regional liquid fuel market and also exports liquid fuels by sea (the port of Rosenets on the Black Sea is used for sea operations – importing crude oil to the plant and exporting products). In technological terms, it is a semi-complex refinery with a high yield of light and middle distillates (91%), so, high-margin products. The plant is capable of importing and processing various grades of crude oil, but in order to optimize operating facilities, the best feedstock is crude oil from the Russian Federation (Urals) or comparable grades[1] , including from Iraq, Iran, or Saudi Arabia.

Restrictions on refinery operations. The Russian-Ukrainian war has resulted in numerous sanctions being imposed on a number of Russian assets in Europe, including Central Europe, significantly restricting the operations of some companies. As part of the sixth package of sanctions, a ban on crude oil imports by sea from Russia was imposed, but Bulgaria managed to obtain appropriate derogations for these provisions (“IEŚ Commentaries”, no. 707). Under the negotiated solutions, the Burgas plant was originally allowed to buy crude oil by sea from the Russian Federation until the end of 2024. However, until now, the owner of the refinery has not taken any steps to change the refinery’s crude oil processing structure and has even maximized supplies from the Russian Federation. This kind of attitude of the plant’s owner caused the Sofia government to take steps to force Lukoil to seek new directions for crude oil supplies. As a result, the government took the following decisions: first, in September 2023, it revoked the license granted to Lukoil in 2011 for 35 years for operational control of the Rosenets oil terminal. Under the new regulations, the terminal can still be operated by Lukoil but must pay a special fee to Bulgaria. Second, a 60% tax on profits was imposed on the refinery. Third, a ban has been imposed on the export of liquid fuels produced at the Burgas refinery from crude oil processed from the Russian Federation (effective 1 January 2024). Fourth, the derogation period for importing crude oil from Russia by sea was shortened from the end of 2024 to 29 February 2024. Under these conditions, Lukoil has taken steps to import KEBCO-grade crude oil from Kazakhstan, with the most likely being crude oil from the Russian Federation with identical physical and chemical properties to Urals grade (“IEŚ Commentaries”, no. 1000). The increasingly difficult market for the Russians in Bulgaria eventually prompted Lukoil to take steps to sell the Burgas plant.

Potential buyers. It has been reported by the media that companies from Azerbaijan (SOCAR), Kazakhstan (KazMunayGas), and the US are among those currently interested in acquiring the Burgas refinery. It is also indicated that the refinery is of interest to US millionaire Michael Karsch, who is linked to Kiril Petkov, the former Bulgarian prime minister. At the same time, in February 2024, the subject of the sale of the refinery was raised by Asen Vasilev, Bulgaria’s finance minister, during talks with representatives of the US administration in Washington. On the one hand, Lukoil, as the owner, is taking steps to sell its assets, while on the other hand, the Bulgarian government is also trying to interest potential partners in the purchase. Ultimately, the Russian company will decide which entity is most likely to take over the entire stake after Lukoil. The topic does not appear to have led to the nationalization of the Russian company by the government, in a situation where a potential buyer would be viewed negatively in Sofia.

Given the ongoing process and the media reports, it is possible to observe that each of the potential players appearing in the public space would affect the domestic and regional liquid fuel markets differently as well as the refinery’s crude oil supply in different ways. Of the entities that have emerged as buyers, the most likely scenario involves the sale of the refinery to KazMunayGas of Kazakhstan. This type of solution may be favoured by Lukoil, as it would guarantee the supply of crude oil from the Russian Federation (as KEBCO grade), especially given the close Russian-Kazakh political-business ties, which include the trade of KEBCO grade crude oil to various refineries around the world, therefore, this is precisely the solution that Lukoil may advocate. At the same time, taking into account the peculiarities of the oil market, another likely solution could be the sale of the plant to SOCAR of Azerbaijan, which has extensive logistics, trades in crude oil and liquid fuels, and owns a refinery in Turkey (“IEŚ Commentaries”, no. 937). It seems that under these circumstances, SOCAR would be able to secure crude oil supplies from directions other than the Russian Federation. Also, an acceptable scenario could be the sale of the plant to financial institutions (e.g., an investment bank) in partnership with a crude oil and liquid fuel entity that would formally manage the refinery. Consequently, it does not seem that a sale of the plant to US entities would take place as it will be a matter of concern to ensure the proper operation of the refinery, including guaranteeing the supply of crude oil, given the numerous logistical challenges posed by the plant’s location (crude oil from Russia, Kazakhstan, and Azerbaijan is mainly traded in the region, and supplies from other directions affect the logistics and ultimately the price of imported grades).

Conclusions:

  • The Burgas refinery is in an increasingly difficult situation, both for internal and international reasons. Restrictions imposed by the Sofia government mean that the profit from crude oil processing is burdened with a high tax, and the logistics of supply are complicated by the inability to import crude oil from the Russian Federation. The solution, but only in the short term, seems to be importing KEBCO grade crude oil from Kazakhstan (most likely from Russia). In addition, the operation of the plant is affected by the international situation, including the availability of alternative grades. Indeed, the main problem is Iraq’s failure to export crude oil from the Kurdistan region[2]  as well as the longer time and, therefore, more complicated logistics of importing grades from other regions (deliveries from Russia’s Black Sea terminals take several days, while those from the Middle East can take as long as 25-30 days). Such alternatives affect the cost of operating refineries. A certain solution would be the construction of the Burgas-Alexandropolis pipeline (“IEŚ Commentaries”, no. 808), but the construction of a new trunk line is uncertain and lengthy. It seems that the government will not take steps to build the pipeline as long as the refinery is owned by a company from the Russian Federation.
  • The race for Russian assets in Bulgaria has only just begun, and it is currently difficult to indicate which option Lukoil will choose. Of course, the government in Sofia may also have its preferences, but the final decision will rest with the Russians. At present, the emerging potential buyers could affect state security in different ways. The most likely choice seems to be KazMunayGas. However, taking into account the regional liquid fuel market, SOCAR is also in play, which would guarantee the availability of crude oil as well as the transparency of investment and trade activities. At the same time, this type of solution may be supported behind the scenes by the government, as there would then be a strengthening of business relations along the Baku-Sofia line. Cooperation between the two countries concerns not only the crude oil sector but especially the natural gas sector (“IEŚ Commentaries”, no. 864). For the government in Sofia, cooperation with Kazakhstan may be problematic due to its ties with the Russian Federation. In contrast, other solutions may be troublesome primarily in terms of guarantees of crude oil supplies (millionaire Michael Karsch or potential investors from the US).

[1] On the crude oil sector of Central European countries, see M. Paszkowski, Przemysł rafineryjny w państwach Europy Środkowej: uwarunkowania, wyzwania, perspektywy, „Prace IEŚ”, no. 4, Lublin 2022.

[2] Crude oil exports were halted on March 25, 2023, following an International Chamber of Commerce (ICC) arbitration ruling, which ordered Turkey to pay Iraq $1.5 billion in damages for unauthorized crude oil exports conducted by the Kurdistan Region government between 2014 and 2018. According to the Baghdad government’s position, all crude oil produced in Iraq is the sole responsibility of the state-owned company SOMO, which was not involved in the Kurdistan Region’s crude oil sales process.

Proposals for new fiscal rules in the EU: the perspective of Central European countries

The reform of public finance architecture in the European Union focuses on solutions that, on the one hand, will allow member states to ensure long-term financial stability, but on the other hand, will not stifle economic growth and the planned reforms and investments in strategic areas. Of particular importance from the point of view of Central European countries is the proposal that the new regulations provide space for necessary investments in defence, which has become a priority in the face of growing security threats.

Need for change. The EU’s fiscal policy has its roots in the Maastricht Treaty, signed in 1992, which required all current and future member states to keep public debt below 60% of GDP and budget deficits below 3% of GDP. The Stability and Growth Pact, adopted in 1997, introduced additional procedures to monitor and enforce these requirements through two types of mechanisms: (1) preventive, mainly by requiring regular reporting on the state of public finances by member states, and (2) corrective, also referred to as repressive or deterrent, based on the excessive deficit procedure. Originally, the pact was based on a European Council resolution and two regulations. However, over time – in response to the challenges posed by the economic context – the EU’s fiscal policy regulations have undergone significant reforms. Key changes were introduced in the wake of the global financial crisis and the eurozone debt crisis, including the adoption of a new treaty (the 2012 Treaty on Stability, Coordination and Governance, the so-called Fiscal Compact) and eight regulations (the 2011 six-pack and 2013 two-pack). As a result, the two main criteria – the size of the deficit and the debt-to-GDP ratio – were retained, while the correction mechanism associated with exceeding them was strengthened, primarily for eurozone countries.

Although the changes introduced were a significant step toward streamlining fiscal policy in member states, they did not end the discussion on the architecture of public finances in the EU. Public opinion was increasingly dominated by voices indicating that the complex network of rules and exceptions makes fiscal frameworks too complicated, inconsistent, and characterized by subjectivity and arbitrariness in terms of their enforcement. This was confirmed by the European Commission’s economic governance review, which submitted a number of questions for public debate, including how the framework can be improved to ensure sustainable public finances in all member states[1]. However, this debate was interrupted by the COVID-19 pandemic, at which time the EC loosened budgetary requirements by triggering a special clause of the fiscal compact – general escape clause – to allow member states to increase spending to support economies weakened by pandemic austerity (“IES Commentaries”, No. 273). The duration of the escape clause was extended after the outbreak of the energy crisis and the full-scale Russian invasion of Ukraine. At the end of 2023, the clause was deactivated, and the EU’s existing fiscal rules took effect again.

Proposed changes. Reform of the EU’s fiscal rules is once again at the centre of the discussion in the new post-pandemic realities, which have been further complicated by the challenges of growing security risks. On the one hand, arguments were made for increasing the flexibility of the fiscal rules so as not to restrict investment and risk further slowing down the – already relatively slow (“IES Commentaries” No. 1024) – economic growth, especially in the face of increased defence spending. On the other hand, however, arguments have been raised about the need to tighten fiscal rules, as the state of public finances has deteriorated significantly in many EU countries in the wake of the recent crises, with many exceeding the debt and deficit-to-GDP values enshrined in the Maastricht Treaty.

According to Eurostat data, as of the end of the third quarter of 2023, the public debt-to-GDP ratio exceeds the value of 60% in thirteen EU countries, including three central European countries: Hungary – 75%, Slovenia – 71.4%, and Croatia – 64.4% (the average value of this ratio for the whole EU is 82.6%). In addition, the European Commission forecasts that in 2024 the public deficit-to-GDP ratio will exceed the reference value of 3% in thirteen EU countries, including seven central European countries: Slovakia – 6.5%, Romania – 5.4%, Poland – 4.6%, Hungary – 4.3%, Slovenia – 3.3%, Latvia – 3.1%, and Bulgaria – 3.0% (EU-wide – 2.8%).

In this context, the preliminary agreement of the Council and the European Parliament, announced in February 2024, underscores the reform’s objective of reducing debt ratios and deficits in a gradual, realistic, sustained, and growth-friendly manner while protecting reforms and investment in strategic areas. This is to be served by the national medium-term fiscal-structural plans (also known as reference trajectories), under which member states will present both fiscal paths ensuring the achievement of the debt and deficit ratios enshrined in the Maastricht Treaty and commitments to public investment and priority reforms. Among these, it points in particular to those related to green and digital transformation, the need to ensure energy security and social and economic resilience, and – of particular relevance in the context of Central European countries – the need to build defence capabilities. The agreement explicitly states that increasing public investment in defence should be considered as one of the relevant factors in assessing the existence of an excessive deficit. This is significant especially for Central European countries, which have noticeably increased defence spending in the face of the Russian invasion of Ukraine.

The reform is awaiting formal approval by the European Parliament and the Council of the European Union, with the new regulations expected to be adopted in 2024. The European Commission presented guidelines on 9 March 2024, for the conduct and coordination of fiscal policy until the new reform takes effect. In them, it recommended that some elements of the reform directions be incorporated into the fiscal surveillance cycle as early as 2024, including in particular those related to the preparation of plans in which member states determine their medium-term budget plans.

Conclusions. The reform of the public finance architecture in the European Union is focused on finding solutions that allow a more flexible approach to fiscal rules, without sacrificing the pursuit of long-term financial stability. The solution to reconciling these mutually exclusive goals (increased flexibility can make it difficult to maintain fiscal discipline) is medium-term fiscal-structural plans, which are designed to integrate fiscal commitments with ongoing reforms and strategic investments.

From the point of view of Central European countries – in light of the increase in security threats and the need for rapid adaptation to new geopolitical conditions – it is important that these plans take into account the need for increased defence spending. Indeed, it turns out that among the EU NATO member states, it is Poland, Finland, Hungary, Romania, Estonia, and Lithuania, in turn, that have increased their defence spending to the greatest extent since the outbreak of full-scale war in Ukraine (i.e., in 2022 and 2023)[2].

[1] European Commission, Economic governance review, https://eur-lex.europa.eu/legal-content/en/TXT/?uri=celex%3A52020DC0055.

[2] NATO, Defence Expenditures of NATO Countries, https://www.nato.int/cps/en/natohq/news_216897.htm.

Sweden in NATO: Relevance for Central and Eastern Europe

On 7 March 7 2024, Swedish Prime Minister Ulf Kristersson and the state’s Foreign Minister Tobias Billström handed over the accession documents to US Secretary of State Antony Blinken, who, as representative of the Washington Treaty depositary state, officially announced that Sweden had become the 32nd member of the North Atlantic Treaty Organisation. Sweden’s presence in NATO will not only strengthen the Alliance’s operational capabilities in the Baltic Sea basin but will also be of significant importance for Central and Eastern European (CEE) countries. Sweden is recognised in the region as a reliable partner for arms contracts, and its NATO membership will only bolster this reputation. The Swedish arms industry executes several contracts in CEE countries and is an essential component of the support for Ukraine.

Sweden’s path to NATO: the perspective of the CEE countries. Turkish President Recep Tayyip Erdoğan’sratification of Sweden’s NATO accession protocol on 25 January 2024 proved to be a landmark step on Sweden’s path to membership of the Alliance. This was followed by a change in Hungary’s attitude towards the Swedish application in February 2024. After a vote in the National Assembly (26 February 2024), Hungary’s new president, Tamás Sulyok, signed Sweden’s accession protocol to the North Atlantic Treaty Organisation on his first day in office (5 March 2024) (‘IEŚ Commentaries’, No. 1073). For most of the CEE countries, including the Baltic States (‘IEŚ Commentaries’, No. 906) and the Czech Republic (‘IEŚ Commentaries’, No. 912), Hungary’s actions, resulting in a prolonged process of NATO’s northern enlargement, initially caused misunderstanding, which turned into criticism in the following months.

The completion of the process of Sweden’s entry into NATO, which took place on 7 March in the United States, represented a kind of ‘Copernican Revolution’ in the Baltic Sea region, as it led to a significant shift in the balance of power in favour of the Alliance (‘IEŚ Commentaries’, No. 901). The next months will show the consequences of this process for the CEE countries.

Sweden in NATO: strengthening the Alliance. Representatives of the CEE countries have frequently made it clear that they see Sweden’s (and Finland’s) accession to NATO as a strengthening of the Alliance. This was evidenced by the ratification of the accession protocol by the vast majority of them as recently as July 2022. This is primarily because Sweden is an economically highly developed country that is currently in the process of rebuilding its armed forces. Two mechanised brigades are being modernised and equipped with, among other things, Anti-Access Area Denial (A2AD) capabilities, and two more are being reconstituted. These four brigades and the battle group stationed in Gotland will be subordinated to a division-level command by 2030. This process is accompanied by the rearmament of ground forces, including a USD 500 million contract with the UK’s BAE Systems for the delivery of 48 Archer self-propelled howitzers, a contract with Finland’s Patria for the delivery of 350 Patgb 300A 6×6 wheeled armoured personnel carriers between 2024 and 2033 (20 were delivered as late as October 2023) and a USD 320 million contract with Krauss-Maffei Wegmann for the modernisation of 44 Stridsvagn122 tanks (the Swedish Leopard 2 configuration). In early January 2024, Sweden announced its plans to participate in NATO’s Enhanced Forward Presence (eFP) by deploying a mechanised combat battalion to Latvia and integrating it into the brigade structure, of which Canada is the framework state[1]. At the same time, alongside these purchases, Sweden is modernising its navy and air force (‘IEŚ Commentaries’, No. 1023), which will strengthen NATO’s defence and deterrence forces.

The importance of the Swedish defence industry for the CEE countries. Sweden’s NATO membership will offer greater opportunities for CEE countries to benefit from the Swedish defence industry, which is one of the largest in Europe. It is made up of almost 350 factories, valued at more than SEK 29.4 billion kroner (approximately USD 3 billion) in 2022, with total defence exports reaching almost SEK 16.5 billion (over USD 2 billion)[2]. According to data from the Stockholm International Peace Research Institute (SIPRI) for 2018-2022, Sweden was the 13th largest arms exporter in the world[3]. Swedish arms giant Saab was included in SIPRI’s ranking of the top 100 arms producers in 2022, ranking at a high 39th place[4] Three players were responsible for two-thirds of the value of exports in 2022: Saab AB, which manufactures, among other things, the JAS-39 Gripen multirole fighter aircraft, the GlobalEye – a multi-domain Airborne Early Warning & Control (AEW&C) aircraft, the Carl Gustaf-M4 – a man-portable, multi-role weapon system and an anti-armour weapons AT4, as well as two sites belonging to the UK’s BAE Systems – Hägglunds in Örnsköldsvik, known for the production of CV90 (Strf 90) infantry fighting vehicles (IFV), and Bofors system in Karlskoga, manufacturer of, among other things, the Archer self-propelled howitzer system.

Following the outbreak of a full-scale war in Ukraine, the Swedish defence industry is experiencing growth related to global militarisation. According to the latest figures from the Inspectorate of Strategic Products, presented on 4 March 2024, the value of Sweden’s arms exports in 2023 exceeded 18 billion kroner, or EUR 1.6 billion (an increase of 18%)[5]. Of the CEE countries, among the top ten importers were Hungary (SEK 946 million, approximately EUR 85 million) and the Czech Republic (SEK 488 million, approximately EUR 44 million), which purchased spare parts for in-service combat aircraft. However, the 2023 transactions do not fully reflect the importance of Sweden’s arms industry to the security of the states in the region, as contracts for future deliveries have been signed in recent years. The Czech Republic has purchased 246 of the aforementioned CV90 IVF (contract worth USD 2.2 billion as of May 2023) and Slovakia, 152 of the CV90 IFV (contract worth USD 1.37 billion in December 2022). In almost identical contracts, local – i.e. Czech and Slovak industries – are expected to participate in around 40% of the total contract value. The building of CV90 production and modernisation capabilities in the two countries is also expected to have a tangible impact on the military support of Ukraine, which also uses this IFV. The Swedes have handed over at least 50 CV90, and the Ukrainian side is interested in purchasing several hundred more machines and launching some production on its territory. Due to the ongoing military conflict, the second objective may be difficult to realise. Therefore, such facilities with production capacity, but primarily service capacity, in geographically close NATO countries can provide a logistical base for Ukraine. A Czech-Ukrainian-Slovak letter of intent in this regard was signed back in June 2023.[6] Estonia is another regional user of CV90, which in its case was purchased from the Netherlands and Norway, where they were previously used.

Sweden’s Saab is a key supplier of JAS-39 Gripen fighter jets, which are in service with the Czech and Hungarian Air Forces. In the Czech Republic, these aircraft will be replaced in the coming years by F-35 fighter jets (‘IEŚ Commentaries’, No. 1066), while the Hungarians will most likely opt to buy or continue leasing the JAS-39 Gripen fighter jets after 2026 (‘IEŚ Commentaries’, No. 1073). It is worth noting that the replacement of the Gripen fleet is currently taking place not only in the Czech Republic but also in Sweden. The security umbrella that NATO will provide Sweden is likely to encourage the Swedish government to eventually decide to transfer some of the Gripens in C/D configuration to Ukraine. Ukrainian pilots have already been training in Sweden for some time to operate these fighter jets.

Due to the specific nature of the Central and Eastern European theatre of war, the Carl-Gustaf recoilless rifle (also in its latest M4 version), which is in service with the armed forces of the Baltic States, Visegrad Group countries, and Ukraine, is also an important export commodity for the Swedish arms industry. On 7 March 2024, the first of two contracted Saab 340 airborne early warning and control (AEW&C) aircraft also arrived in Poland. Before this purchase, the Polish Armed Forces could only rely on the NATO AWACS system.

Sweden’s contribution to the civil defence of CEE countries. Swedish solutions to civil defence, cyber security and the strengthening of societal resilience may be of interest to the CEE countries. The Swedish authorities are working on an update of the long-term defence plan to be published in April 2024, which is expected to cover both military and civilian defence, as well as financial allocations for the next period of the Defence Act. It will build on the previous security strategy, Total Defence 2021-2025 (‘IEŚ Commentaries’, No. 464), while at the same time, it will take into account Sweden’s accession to NATO and the need to further develop military and civil defence. In this context, it should be noted that the Defence Committee of the Swedish Parliament submitted its report on the state and further development of total defence, with a particular focus on civil defence, on 19 December 2023 to Minister for Defence Pål Jonson and Minister for Civil Defence Carl-Oskar Bohlin. Its recommendations boil down to an urgent strengthening of the civilian component of total defence to increase social resilience and the ability to deal with crises.

Conclusions

  • Sweden’s accession to NATO was supported by almost all CEE countries. The enlargement of the Alliance has become a regional game-changer for securing the Baltic Sea region and CEE more broadly. This translates not only into the political cooperation dimension or operational plans but also into the building of real capabilities based on the deployment of the Swedish Armed Forces in the region or the establishment of bilateral contracts. Sweden’s NATO membership enhances the Alliance’s real capabilities in deterring Russia and brings further opportunities for military support to Ukraine.
  • Sweden’s privately-owned arms industry is very well developed and will benefit in the next few years from the so-called ‘NATO effect’, resulting, among other things, from demand aggregation, i.e. combining a large number of equipment orders from NATO member states with a commitment to increase interoperability. An example of this effect is the decision of the NATO Support and Procurement Agency (NSPA) on 5 February 2024, to procure AT4 anti-armour weapons worth approximately EUR 63 million with deliveries in 2026-2027.

[1] Speech by Prime Minister Ulf Kristersson at Folk och Försvars annual national conference 2024, https://www.government.se/speeches/2024/01/speech-by-prime-minister-ulf-kristersson-at-folk-och-forsvars-annual-national-conference-2024/.

[2] Strategic Export Control in 2022 – Military Equipment and Dual-Use Items, https://www.regeringen.se/contentassets/0a1bf3ba74844c96b896a6e712c39e97/strategic-export-control-in-2022-military-equipment-and-dual-use-items/.

[3] https://www.sipri.org/sites/default/files/2023-03/2303_at_fact_sheet_2022_v2.pdf

[4] https://www.sipri.org/sites/default/files/2023-11/fs_2312_top_100_2022.pdf

[5] Den svenska exporten av krigsmateriel 2023, https://isp.se/nyheter/pressmeddelande-den-svenska-krigsmaterielexporten-2023/.

[6] https://twitter.com/oleksiireznikov/status/1669760093972299785

Security as a priority in Polish-Lithuanian relations

Poland and Lithuania have significantly strengthened their political relations recently, as numerous official visits at the highest level have reflected. Lithuania was visited by the Foreign Minister of Poland, Radosław Sikorski, then President Andrzej Duda, Speaker of the Sejm Szymon Hołownia, and Prime Minister Donald Tusk. Representatives of both countries have confirmed their solidarity in case of any military threat from Russia as well as the will to continue cooperation in the fields of economy, society, and culture. Intensive bilateral relations express a strategic partnership that is important not only for Poland and Lithuania but also for the entire Baltic Sea region. It may also be the first step toward defining the long-term priorities of the northern policy of Poland.

Calendars full of meetings. Since the beginning of 2024, many top-level meetings have been held between representatives of Poland and Lithuania, which prove the intensification of bilateral relations. Particularly within the foreign policy of the newly elected Polish government, Lithuania occupies a priority position. In January, Polish Minister of Foreign Affairs Radosław Sikorski met his Lithuanian counterpart, Gabrielius Landsbergis, in Vilnius. It was the second foreign visit of the Polish minister since he began performing this function in December 2023. The foreign ministers of Poland and Lithuania discussed the issues of further support for Ukraine, the security situation, defence cooperation in the region, and the tightening of sanctions against Russia and Belarus. They also emphasised the importance of bilateral critical infrastructure projects – synchronisation of the power grids of the Baltic states with Western Europe, the Rail Baltica, and the Via Baltica. Also in January, Polish President Andrzej Duda arrived in Lithuania and met with Lithuanian President Gitanas Nausėda in order to celebrate the 161st anniversary of the outbreak of the January Uprising (1863-1864). The leaders of both countries discussed bilateral cooperation in the field of defence, the security situation in the region, and the issue of assistance to Ukraine.

In February, Speaker of the Sejm Szymon Hołownia paid his first official visit abroad to Vilnius, where he met the Speaker of the Lithuanian Seimas, Viktorija Čmilytė-Nielsen. In addition to security and defence issues, regional cooperation and multilateral formats were discussed. Challenges related to the education and preservation of the national identity of the Polish minority in Lithuania and the Lithuanian minority in Poland were also discussed. In March, Polish Prime Minister Donald Tusk visited Vilnius, where, together with Lithuanian Prime Minister Ingrida Šimonytė, he raised issues related to security and the economy, and confirmed solidarity and guarantees of cooperation in the event of a threat. The visit of Prime Minister Tusk, who as the Prime Minister of the Polish government last visited Vilnius 13 years ago, was very positively received by public opinion in Lithuania. At the same time, there was another meeting between Gitanas Nausėda and Andrzej Duda, who together observed the NATO Dragon 2024 military exercise in Korzeniewo in the Pomeranian Voivodeship. A series of exercises named Steadfast Defender-24 were intended to test the readiness and efficiency of the Alliance to deter and defend against potential threats in land, air, and sea conditions. In addition to the presidents of Poland and Lithuania, the event was also attended by, among others, NATO Secretary General Jens Stoltenberg.

Strengthening regional security as a priority of Polish-Lithuanian cooperation. At all meetings at the highest level, the main topic of discussion was regional security and support for Ukraine in the context of Russia’s aggression. Politicians unanimously agreed that the current Polish-Lithuanian relations are of a strategic nature, and in the event of a situation of direct threat, the countries will provide each other with military assistance. These declarations were even more important after the words of General Ben Hodges, former commander of US land forces in Europe, who, in January 2024, stated that Russia, wanting to test NATO’s collective defence, would be more willing to conduct small-scale operations in the Baltic states than a full-scale attack on Finland. In turn, during the Vilnius Security Forum in February 2024, he assessed that in the event of a Russian attack, Lithuania may be forced to defend itself for at least two weeks. Thus, he made it clear that the guarantees arising from Article 5 of NATO are not automatic but are activated as a result of the internal procedures of allied countries. This second statement by General Hodges sparked an emotional debate in Lithuania, especially when Prime Minister Šimonytė pointed out that Polish legislation limits the participation of the Polish Armed Forces in Lithuania in the case of aggression. Her words raised the question of whether Poland would provide help to Lithuania in a situation of threat. Both Prime Minister D. Tusk and President A. Duda responded to Šimonytė’s concerns and assured her that Poland was ready to defend the entire territory of NATO, including Lithuania. They emphasised that Russia remains the main and long-term military threat to the Alliance, and close and solidary cooperation of both countries in the field of security and defence is a priority for Poland. It was also recalled that from 2022, the Polish-Lithuanian plan for the defence of the Suwałki Gap (the so-called Orsha plan) provides that in the event of a military attack, Polish soldiers would also defend the territory of Lithuania.

The background of the current bilateral talks on regional security was the protests of Polish farmers, especially those who had been blocking the road at the Kalwaria-Budziska border crossing with Lithuania since the beginning of March. Although Minister Landsbergis expressed concern that the protests may be called “hybrid actions” directed against the national security of Poland and Lithuania, so far these actions have been peaceful. Polish farmers protested against the uncontrolled inflow of grain from Ukraine, fearing that it was being re-exported from Lithuania to Poland. In turn, in Lithuania, the challenge is the importing of agricultural products from Russia and Belarus. In January, Lithuanian farmers organized protests in Vilnius, where they called, among other things, for limiting the import of Russian grain to Lithuania. In February, Latvia already introduced a ban on the import of grain and other agricultural and feed products from Russia and Belarus (according to data from the Latvian Ministry of Agriculture, the import of agricultural products from Russia to Latvia in the first ten months of last year amounted to EUR 280 million, which corresponded to 12% of the total import of these goods in the EU). Lithuania also plans to introduce similar restrictions.

A contribution to the northern foreign policy of Poland. Poland’s intense relations with Lithuania may be the first step in preparing the assumptions for the long-term northern policy of Poland, which Speaker of the Sejm Sz. Hołownia talked about during his visit to Vilnius. Poland’s northern policy would be based on an alliance with the Baltic-Nordic partners, and its goal would be to implement Poland’s interests in the field of security (the main threat remains Russia and its semi-exclave – the Königsberg Oblast), as well as to develop existing relations and initiate new forms of regional cooperation. This would be achieved through meetings at various levels (heads of state, government, parliament) as well as multilateral formats, including: the Lublin Triangle or what Hołownia called – the Baltic Triangle. The latter becomes particularly important after the accession of Finland and Sweden to NATO. In the future, the Polish-Baltic-Nordic cooperation could also constitute a pillar of the EU policy in the context of the reconstruction of Ukraine. Poland’s northern policy would also be part of shaping the European north-south axis of contacts.

Conclusions. Regional security remains the main area of cooperation between Poland and Lithuania. Poland is directly involved in strengthening the security of the Baltic region, actively participating in the NATO Baltic Air Policing mission and taking part in joint military exercises. Further activities envisage the development of Polish-Lithuanian cooperation in the defence industry. What they have in common is the perspective of perceiving not only military threats from Russia but also hybrid ones – disinformation or illegal migration, supported by the Belarusian regime on the borders of Lithuania, Poland, and Latvia. The countries also agree on maintaining and expanding the package of sanctions against Russia as well as continuing financial and military support for Ukraine. During his visit to Vilnius, Prime Minister D. Tusk announced that he would submit to Sz. Hołownia a proposal for a resolution of the Sejm calling on the European Commission to impose sanctions on agricultural and food products of Russian and Belarusian origin in order to protect the European agricultural market. This idea was also supported by the Prime Minister of Lithuania, I. Šimonytė.

Intensive bilateral relations are an expression of the strategic partnership between Poland and Lithuania, which is important not only for both countries but also for the entire Baltic Sea region. They can also be the first step in defining the long-term priorities of Poland’s northern policy. The 30th anniversary of the Treaty between the Republic of Poland and the Republic of Lithuania on Friendly Relations and Good Neighbourly Cooperation, which falls on 26 April 2024, might be an opportunity to further discuss the future of Polish-Lithuanian relations.

Natural gas demand decline in the Baltic countries in 2023

The Baltic countries have recorded another consecutive year of declining natural gas demand in 2023. Initially, such a situation was related to the COVID-19 pandemic and high commodity prices on exchanges in Europe (the result of price manipulation by Russia in 2021 and then the Russian-Ukrainian war in 2022). It is now expected that the projected economic growth in 2024 and the stabilization of natural gas prices in Europe may contribute to an increase in the consumption of this commodity across the region.

Lithuania. Natural gas demand in this country accounts for 56% of the total consumption in the Baltics. In Lithuania, this commodity is mainly used for industrial purposes, most notably for the production of ammonia, used in the manufacture of fertilizers by the Achema company at its plant in Janovo, which accounts for 50% of Lithuania’s natural gas consumption. In addition, this commodity is used in the generation of electricity at thermal power plants and also for cooking in rural areas (it is less often used for heating purposes). Since 2012, lower consumption has been recorded for two main reasons; first, natural gas has been replaced primarily by biomass in some of the old, run-down thermal power plants, and second, the level of consumption is closely linked to Achema’s demand. The plant had been operating at a low level since 2021 due to high natural gas prices and partially resumed operation of one of its two generating units in October 2023. Again, as of November 2023, the plant is undergoing maintenance. In 2023, there was another decrease in natural gas consumption (4% compared to 2022), due to the warm winter in the 2022/2023 fall/winter season and high natural gas prices on markets in early 2023. During this period, demand for natural gas increased, mainly for electricity generation.

Natural gas demand is expected to increase in 2024 for three reasons: firstly, the stabilization of natural gas prices, which is taking place despite the ongoing Russian-Ukrainian war. Currently, the warm winter has meant that consumption of this commodity for heating purposes remains low, which affects the price of natural gas. A certain exception was the situation in January 2024, when there was a cold wave that significantly increased demand for electricity and heat. It is expected that the level of accumulated stocks in the European Union countries should be high at the end of the 2023/2024 heating season, which will stabilize the price in Europe. Secondly, the realization of supplies together with a smoothly functioning import infrastructure. At the moment, 85% of Lithuania’s natural gas supply takes place through the Klaipeda LNG terminal, and deliveries are carried out without hindrance. Thirdly, economic growth, which the International Monetary Fund (IMF) estimates to be 2.7% versus a decline of 0.2% in 2023.

Latvia. The country’s demand for natural gas is about 31% of total consumption in the Baltic countries, and this commodity is used primarily for electricity generation and heating. The largest role in this regard is played by power plants and combined heat and power plants in Riga (the CHPP-1 and CHPP-2 plants, owned by Latvenergo)[1]. In 2023, there was a decrease in demand for natural gas (by 6%) as a result of high prices in Europe and high levels of hydroelectric power generation (thanks to favourable weather conditions). At the beginning of 2024, high levels in underground gas storage facilities in Europe and the warm winter mean that current market conditions, along with projected economic growth, should fully determine the condition of the country’s natural gas market. According to IMF estimates, Latvia’s GDP is expected to grow by 2.6% in 2024, compared to 0.5% in 2023. At the same time, a policy to move away from fossil fuels will be an element limiting the increased demand for natural gas. For example, in February 2024, the Riga authorities approved legislation stating that from January 1, 2026, no new permits will be issued to install gas boilers in homes. Currently, permits are issued for a period of five years, which means that boilers will be allowed to be installed until 2031.

Estonia. The country’s natural gas consumption accounts for 13% of the total demand for this commodity in Baltic countries. At the same time, in this country, the largest decrease in demand for this commodity was recorded in 2023 compared to 2022 (by 9%). In general, natural gas plays a minor role in the country’s economy (except for heating), which is primarily due to the large share of oil shale in the electricity generation process (“IEŚ Commentaries”, no. 164). In Estonia, natural gas is used for district heating and in boilers, i.e., in households (65%). In addition, biomass plays an important role (35%). In 2023, the lower consumption of natural gas was influenced by several factors. First, in 2022-2023, several CHP plants in Estonia received approval to temporarily use other types of fuel (mainly heavy fuel oil) for heat generation, but the approvals were lifted in the fall/winter of 2023/2024. As a result, the return of CHP plants to heat generation based on natural gas meant that consumption of this commodity increased significantly at the end of 2023 but was not so significant as to offset the decline throughout 2023. Second, the government continued its efforts to reduce the demand for natural gas in district heating and households for heating purposes, and in this regard, it plans to increase the share of renewables (RES). Third, the government has maintained regulations to ensure that consumers are protected from rising natural gas prices. Despite this, many people are looking for other cheaper solutions.

In 2024, an increase in consumption of this commodity can be expected due to the inability of thermal power plants to use heavy fuel oil and an improvement in the economic situation (according to IMF forecasts, GDP growth of 2.4% is expected in 2024, compared to a decline of 2.3% in 2023). The final level of demand will also be influenced by the price of natural gas in Europe. Nevertheless, the government can be expected to continue its efforts to reduce the use of natural gas in the Estonian economy in the coming years, with a partial increase in the share of biomethane.

Conclusions:

  • The level of demand for natural gas in the Baltic countries in recent years has been closely correlated with the price of this commodity in Europe. A large increase in prices, as a result of market manipulation by the Russian Federation in 2021, caused the level of consumption to be significantly reduced (Lithuania, Latvia, and Estonia combined saw a 33% drop in demand in 2022 compared to 2021).
  • In 2024, consumption can be expected to increase, which may be due to the projected stabilization of natural gas prices. Such a situation may occur as a result of underground gas storage filling levels in facilities in Europe, which causes a decline in prices. In the current environment, natural gas can be expected to be supplied through the Klaipeda LG terminal and the GIPL pipeline connecting Poland with Lithuania, among others. In addition, repairs to the Balticconnector pipeline should be completed in the first half of April 2024.
  • The demand for natural gas in Lithuania, Latvia, and Estonia will be strongly influenced in the long term primarily by EU regulations and the ongoing energy transition process, including, among others, efforts to increase the share of RES in the energy mix. There is full confidence in the Baltic countries that the next step in increasing energy security will be to activate efforts to implement RES projects. An important element in enhancing the security of these countries is membership in the International Energy Agency (“IEŚ Commentaries”, no. 257)[2].

[1] A. Kuczyńska-Zonik, Republika Łotewska, [in:] Raport. Bezpieczeństwo energetyczne państw Europy Środkowej i Wschodniej, ed. B. Surmacz, M. Paszkowski, Lublin 2023, pp. 120-121.

[2] Estonia joined the IEA in 2014, Lithuania in 2022, and Latvia in 2024.

Crude oil terminals in Central European countries in the era of the shift away from Russian commodities

There are six crude oil terminals in the Central European countries of the European Union, supplying a total of sixteen refineries, several of which are located outside the EU. Due to the ongoing Russian-Ukrainian war, these terminals have been unloading tankers from countries that have not previously supplied crude oil to these refineries, or if they have, sporadically, in 2023. The process of moving away from importing crude oil from the Russian Federation will be difficult, but the 2023 data indicates that such actions have already been taken and will probably continue in many cases.

Baltic Sea. There are two key receiving points for crude oil delivered by sea in this region – in Poland (Gdansk crude oil terminal) and Lithuania (Butinga loading buoy)[1]. The Gdansk crude oil terminal supplies a total of four refineries, two each in Poland (Plock, Gdansk) and Germany (Schwedt, Spergau), which makes it difficult to identify which refinery processes which grades of crude oil. The terminal is capable of supplying all of the four refineries mentioned[2], but the limited capacity of the Pomeranian pipeline, which sends crude oil south, poses some challenges. Conceptual work is currently underway on the construction of a second pipeline, which would optimize crude oil supplies to Plock and the two refineries in Germany. However, due to the continued supply of KEBCO crude oil from Kazakhstan to the Schwedt refinery via the Druzhba pipeline, a final decision on this investment has not yet been made. In 2023, all four refineries, in Poland and Germany, imported 39 different grades of crude oil through the Gdansk terminal, with the majority being single cargoes. Interestingly, the first 10 grades together accounted for 85% of deliveries. Cargoes from Saudi Arabia (Arab Light grade) and Norway (Johan Sverdrup grade) dominated, accounting for a total of 64% of all deliveries. There were also tankers from new destinations, including Angola, Guyana and Brazil.

In 2023, there were significant changes in the supply of crude oil to the refinery and unloading this commodity in Butinge, Lithuania. At the beginning of the Russian-Ukrainian war in 2022, the Mažeikiai plant of ORLEN Lietuva (a subsidiary of ORLEN) gave up supplies from the Russian Federation (Urals grade), resulting in a gap that was filled by supplies from other directions, including primarily Saudi Arabia (Arab Light), the US (WTI) and the UK (Ekofisk). The share of supplies from Norway (Johan Sverdrup) also increased to a small extent. Thus, the process of diversion of supplies began as early as the beginning of the war in 2022, and not from the introduction of sanctions on offshore crude oil supplies from the Russian Federation (December 5, 2022). In 2022, the Mažeikiai refinery processed only 16% of crude oil from Russia. Therefore, it began processing crude oil mainly from Saudi Arabia, the UK, Norway and the US, and only continued to do so in 2023.

Black Sea. On the Black Sea, crude oil supplies to refineries are provided by three crude oil terminals, two of which are located in Romania (Midia, Constanta) and one in Bulgaria (Rosenets). The terminals supply four refineries, including three operating in Romania (Petromidia in Năvodari,, Petrobrazi and Petrotel in Ploiesti) and one in Bulgaria (Burgas). In the case of terminals located in Romania, there were changes in terms of crude oil supply directions in 2023 compared to 2022. The largest adjustment took place in the handling of crude oil from the Russian Federation, whose share fell from 42% to 3%. Nevertheless, during the same period, the share of KEBCO grade shipments from Kazakhstan increased (to 44%), although there is a high probability that this is crude oil from Russia (“IEŚ Commentaries”, no 1000). Interestingly, in 2022, the share of KEBCO grade unloaded at ports in Romania was 24%. Consequently, it can be assumed that the share of crude oil from the Russian Federation in 2022 fell from 66% (Urals, Siberian Light and KEBCO grades) to 48% in 2023 (KEBCO and Urals grades). There was also a large increase in shipments from other destinations such as Libya (Es Sider), Azerbaijan (CPC Blend, Azeri BTC, Azeri Light), Norway (Johan Sverdrup), Brazil (Sepia) and Guyana (Unity Gold).

With regard to Bulgaria, crude oil handled at the Rosenets terminal is routed to the Burgas refinery. This is the most modern and largest plant in this part of Europe, where high-margin liquid fuels are produced (“IES Commentaries”, no. 707). In 2023. – despite declarations related to the need to move away from crude oil imports from the Russian Federation – the terminal primarily unloaded cargoes from that country. The share of supplies from this direction did not change (90% each in 2022 and 2023). The only modification was in the type of commodity supplied from Russia, as in 2022 there were Urals and Siberian Light grades, and in 2023 only Urals. In 2023, there were also crude oil deliveries from Norway (Johan Sverdrup), Egypt (Western Desert), Brazil (Sepia) and Azerbaijan (Azeri BTC). Only a change in the ownership structure of the Burgas refinery could lead to a reduction in the share of crude oil from the Russian Federation[3].

Adriatic Sea. There are several crude oil terminals on this sea[4], with only one in the Central European country of Croatia (Omišalj). Four refineries are supplied through this port: in Croatia (Rijeka), Hungary (Százhalombatta), as well as in Serbia (Pancevo) and Bosnia and Herzegovina (Brod). For this reason, it is difficult to clearly identify which refineries import which grades of crude oil (as in the case of the Gdansk and Constanta terminals). Nevertheless, in terms of the type of tankers unloaded (their directions), it can be assumed that in 2023 the shift away from crude oil supplies from the Russian Federation continued. In 2022, crude oil from Russia accounted for 29% of transshipments (Urals, Novy Port), while in 2023 there were no such supplies. However, crude oil from Kazakhstan (4%), KEBCO grade, was also imported at that time, suggesting that the share of supplies from Russia may have been small at that time. There was an increase in supplies from Norway (Johan Sverdrup) and Azerbaijan (CPC Blend, Azeri Light) during this period. The OmiŇ°alj terminal also received crude oil from Libya (Es Sider, Al Jurf), Nigeria (Bonny Light) and the US (WTI).

Conclusions

  • In 2023, the process of diversifying the sources of crude oil supply to refineries in Central European countries through crude oil terminals operating in the region continued. Analyzing the realized deliveries, it can be noted that where refineries can import crude oil from the Russian Federation by sea due to the derogations received from the sanctions introduced (Bulgaria, Romania), deliveries from this direction continue. For countries with sanctions in place, such supplies have ceased or are minimal.
  • The shift away from commodities from Russia has made it necessary to import cargoes from different parts of the world. Norway and Azerbaijan dominate among the new supply directions. Libya also plays an important role, and partly Brazil and Guyana (in the case of the latter two directions, this is an apparent pan-European trend – more and more refineries in Europe are processing crude oil from these countries). At the same time, 2023 deliveries were made from Kazakhstan, although here the situation is complicated, as it is most likely crude oil from the Russian Federation.
  • For the countries of Central Europe, conflicts in geographically distant regions – for example, the situation in Venezuela and Guyana, where the territorial dispute may affect the volume of crude oil exports, or attacks by the Huti movement in Yemen, which may cause difficulties in the transport of goods through the Red Sea and the Suez Canal – may also be a certain threat in the context of crude oil supplies.

[1] Lithuania also has a crude oil terminal in Klaipeda, but it is mainly used to export crude oil, produced by AB Geonafta (a subsidiary of LOTOS Upstream), and to import liquid fuels. In the past, the terminal also supplied crude oil to refineries in Belarus – deliveries through the terminal continued by rail to the refineries.

[2] The full use of sea transport (via the Baltic Sea) to deliver crude oil to these refineries was tested in 2019, during the so-called chloride crisis, when shipments of contaminated crude oil from the Russian Federation took place.

[3] The refinery is owned by Lukoil Neftochim Burgas, which is owned by Litasco AS, a Swiss company owned by Lukoil.

[4] There is also an oil terminal in Trieste on the Adriatic Sea, which allows deliveries via the TAL pipeline to refineries in Austria and Germany, and then via the IKL pipeline to the Czech Republic (Kralupy, Litvínov, which belong to ORLEN).

Serhii Plokhii in Conversation with T. Stępniewski: Russia-Ukraine War, and Poland-Ukraine Relations  / February 12, 2024

Serhii Plokhii in Conversation with Tomasz Stępniewski: The Collapse of the Soviet Union, Russia-Ukraine War, and Poland-Ukraine Relations

Serhii Plokhii is the Mykhailo S. Hrushevs’kyi Professor of Ukrainian History and the Director of the Ukrainian Research Institute at Harvard University. His interests include the intellectual, cultural, and international history of Eastern Europe, with an emphasis on Ukraine. He is the author of, among others, The Russo-Ukrainian War: The Return of History (W.W. Norton, 2023); Atoms and Ashes: A Global History of Nuclear Disasters (W.W. Norton, 2022); The Frontline: Essays on Ukraine’s Past and Present (HURI, 2021).

Tomasz Stępniewski, Doctor Habilitatus (Polish Academy of Sciences, Warsaw, Poland); Deputy Director at the Institute of Central Europe in Lublin (www.ies.lublin.pl); and Associate Professor at the Institute of Political Science and Public Administration, Faculty of Social Sciences, The John Paul II Catholic University of Lublin. His most recent publications include: T. Stępniewski and G. Soroka (eds.), Ukraine after Maidan. Revisiting Domestic and Regional Security, Ibidem-Verlag, Columbia University Press (ibidem-Verlag’s book series “Soviet and Post-Soviet Politics and Society” – SPPS edited by Andreas Umland), vol. 188, Stuttgart 2018.