Zapraszamy wraz z Asociace pro mezinárodní otázky / Association for International Affairs do obejrzenia webinarium: Security, disinformation and resilience. The case of the Visegrad Group, które odbyło się 12 lutego 2024 roku.
– Tomáš Kriššák, Information Security Specialist, Slovakia
– Pavel Havlíček, Research Fellow of the Association for International Affairs, Czech Republic
– Jakub Bornio, Senior Analyst at IES Lublin
Moderator: Szczepan Czarnecki, Senior Analyst at IES Lublin
Transnistria will pose a significant challenge in the process of the Republic of Moldova’s accession to the European Union. Until now, the issue has been relegated to the background. There have also been numerous suggestions that Moldova could join the EU without the separatist republic. In reality, however, these propositions should be regarded as part of a political game over the future status of Transnistria.
Brussels’ position. The European Union supports the territorial integrity of Moldova, meaning that in the process of settling the status of Transnistria, it is working towards its reintegration into the mother state. At the same time, Brussels points out that Moldova’s accession to the EU is not dependent on the reintegration of the separatist republic. This position was presented by Josep Borrell, High Representative for Foreign and Security Policy, during the European Political Community Summit in Chisinau (1 June 2023). While expressing that Transnistria would not be a problem on the path of Moldova’s European integration, Borrell referred to the example of Cyprus – a country that joined the EU in 2004, despite having part of its territory remain under the rule of the unrecognised Turkish Republic of Northern Cyprus.
Chisinau’s optics. Official statements made by Moldovan President Mai Sandu and government representatives indicate that Chisinau seeks to re-establish its own control over Transnistria while simultaneously preventing the issue from becoming the only obstacle to EU membership. On 20 September 2023, in an interview with France24 TV, Sandu stated that Moldova was preparing for the ‘geopolitical opportunity’ of reintegration that would arise after Ukraine’s victory in the war with Russia. On the other hand, on 27 October 2023, in an interview with Moldovan radio Vocea Basarabiei, the president said that the government had its own concept of rejoining the left bank of the Dniester, but that it was too early to talk about it openly. According to Sandu, the condition for reintegration is “getting rid of the separatist regime”. A statement by Nicu Popescu, then foreign minister, to the US edition of the Politico portal on 19 September 2023 was also telling: “The territory that is controlled by our government in Chişinău can join the EU irrespective of what happens to the east of us, and that includes the situation around Transnistria”. Furthermore: “a country’s EU aspirations shouldn’t be at the mercy of Moscow, which continues to support the breakaway region of Transnistria”.
Tiraspol in favour of separation. The Transnistrian authorities addressed the issue as soon as Moldova applied for EU candidate status. On 4 March 2022, the so-called Ministry of Foreign Affairs of the unrecognised republic issued a communiqué stating that by applying for EU membership, Moldova was “putting the final dot in the process of settlement” of the conflict. It pointed out that the decision to apply had been made without consulting Tiraspol, and urged Chisinau to recognise the independence of the separatist republic. On 21 October 2023, the so-called Foreign Minister of Transnistria, Vitaly Ignatiev, in an interview with the Russian agency RIA Novosti, referred to statements by Nicu Popescu and other signals about the possibility of Moldova entering the EU without Transnistria. In his view, this model “has its own logic”. He argued that Moldova and Transnistria have been developing as separate ‘states’ for more than thirty years. He emphasised the distinctiveness of their political systems and social identities. Popescu also expressed his conviction that it would not be long before “the necessity of politico-legal formalisation of an objective reality, which de facto has long been established”. The narrative of the Transnistrian media and statements made by less significant politicians directly express the view that Moldova’s accession to the EU should usher in the recognition of Transnistria.
Conclusions
– The reintegration of the separatist republic would signify a major challenge for the Republic of Moldova. Among the biggest problems that would be faced are: the pro-Russianism of the local population, which could significantly change the political scene in Moldova; the functioning of a specific socio-business structure – in which oligarchs linked to the Sheriff company play a key role, meaning that people accused of criminal activities and businesses dependent on them would be integrated into Moldova’s socio-economic system; Russian influence in local security services and business structures; the problem of the legality of the privatisation of enterprises carried out by an unrecognised regime; and the presence of Russian military units.
– The problems mentioned would affect the functioning of the state and the European Union as a whole. A part of the Moldovan political class has come to the conclusion that the best solution would be to formalise Transnistria’s status as a separate entity through the integration of Moldova into the EU. This logic may also be convincing to part of the European elite. According to Tiraspol’s official rhetoric, this scenario is considered the best option.
– In reality, however, all sides see serious drawbacks to the aforementioned solution. In less official conversations, both representatives of the Moldovan power camp and EU diplomats admit that a ‘divorce’ between Chisinau and Tiraspol would generate problems of even greater gravity. This would create a grey zone between Moldova and Ukraine (ultimately two EU member states), with a strong Russian influence. This situation would have a very negative impact on the security of the region – military, economic, and social. For this reason, the implementation of this scenario would not be acceptable to the West.
– In fact, this scenario is also of little benefit to the Transnistrian elite. Their business success is dependent on maintaining close relations with the EU and Western markets (‘Comments of the IEA’, No. 529). This sort of economic arrangement has been developing since 2016 (i.e. since the Sheriff camp took power in the parastatal and the Deep and Comprehensive Free Trade Agreement with the EU was introduced). Moreover, the Russian invasion of Ukraine has further reduced (even minimised) the importance of Eurasian Economic Union markets to the economy there. Being thrown out of the zone of close trade relations with the EU along with experiencing concomitant hostility from Ukraine (which will result in a lack of export opportunities to the East and across the Black Sea), would mean business death for the Transnistrian oligarchs.
– The declarations so far should therefore be interpreted primarily as part of a political game over the future status of Transnistria. Chisinau and Brussels aim to signal to Moldovan society and Tiraspol that the issue will not block Moldova’s EU membership. By doing so, the Transnistrian elites are made to understand that their influence on the overall dynamic is limited – either join or be left behind.
– As far as Tiraspol’s objectives are concerned, the situation is somewhat more complex, as there are two power verticals. The first, the oligarchic one, is primarily oriented towards business pragmatism. It demands both cooperation with Moldova and the EU as well as concern for its own independence, which provides opportunities to pursue interests within the existing model. The aim of this group is, therefore, to raise the stakes in the game of the future status quo in order to obtain the greatest possible freedom, privileges, and perhaps even security guarantees. The second power vertical is related to the military sphere and security services – it is primarily oriented towards the strategic objectives of the Russian Federation. In this case, these include a maximum obstruction of Moldova’s EU integration process. The position of these two groups in relation to each other is largely dependent on the situation on the Ukrainian front and in the international environment. At a time when Russia seemed to be on the defensive, the oligarchic group was more inclined to seek an agreement with Moldova and the EU. Now that the dynamics on the front and in the international environment appear more favourable to Russia, the position of the two groups has moved closer. This is due, among other things, to the fact that the conviction has weakened among local oligarchs that the most important decisions – such as the presence of Russian soldiers and the status of Transnistria – will be made in the near future. In addition, contrary to earlier perceptions, there is now widespread belief that Russia will continue to have significant influence over the situation in Eastern Europe.
– The recognition of Transnistria was never in the interest of Russia, which treated the separatist republic primarily as a tool to place pressure on Moldova. This is still the case today – Transnistria can serve as a tool to destabilise the socio-political situation in Moldova, e.g. through diversionary activities, creating social tension and an atmosphere of fear.
– The optimism of the Moldovan ruling camp on the issue of Transnistria was conditioned by the dynamics present on the Ukrainian front and in the international environment; hence, Mai Sandu’s statements about preparing for a ‘geopolitical opportunity’. This attitude is now in need of revision. It is unclear whether Chisinau actually has a concrete idea for solving the Transnistria problem, as the representatives of the authorities are very restrained in their statements. This is somewhat understandable, as prematurely defining objectives may be troublesome in a situation where the solution to the problem will be conditioned by many factors beyond the control of the Moldovan authorities. Nevertheless, in light of the pace of rapprochement with the EU, the lack of a clear agenda on the Transnistrian issue creates an increasingly visible gap in the sphere of strategic communication.
– It should be noted that both Chisinau and Brussels do not raise the issue of the future of Russian military units on the left bank of the Dniester. There is no doubt that this will have a decisive impact on the future status of Transnistria. It is difficult to imagine Moldova joining the EU together with Russian soldiers. However, there is no answer to the question of how to get Moscow to withdraw its troops. Carrying out a Ukrainian military intervention is unlikely due to the political damage involved (‘Comments of the IEA’, No. 832). At this point, it should be noted that the vast majority of soldiers serving in these units are people born and raised in Transnistria, often holding Moldovan citizenship (estimated at 70-80% of this group). Therefore, the withdrawal of these Russian units will not mean the departure of the people serving in them. The attitude towards them and towards the personnel of the Transnistrian armed forces, police and security services (about 5,000 people in total) will pose an immense challenge to the stability of the state, as well as to its social integrity.
There are several LNG regasification terminals in Central European countries, aimed at securing natural gas supplies from various directions. In the context of the outbreak of the Russian-Ukrainian war, the importance of these terminals has definitely increased. At present, they are a key tool in efforts to diversify the sources and directions of natural gas supplies, especially in connection with the ongoing process of derusification of the energy sector in Europe. In contrast, there are limited opportunities for new investments in the area.
LNG terminals in Central Europe. In 2023, the countries of Central Europe continued the process of changing the structure of natural gas supply (“IEŚ Commentaries”, no. 1027), with LNG terminals playing an important role in this regard. On the Baltic Sea, terminals of this type operate in Poland (Swinoujscie), Lithuania (Klaipeda) and Finland (Hamina, Inkoo), while on the Adriatic Sea in Croatia (Krk). The importance of these facilities is crucial, as they allow access to the international natural gas market and the implementation of countries’ strategies to reduce the supply of natural gas from the Russian Federation. As of 2023, four regasification terminals have been commissioned across Europe: in France, Italy and Germany, two such facilities have been abandoned (Poland, Latvia), and import capacity expansion is already underway or under consideration for three terminals (Poland, Lithuania, Croatia), and one such station is under construction (Poland).
Poland. The LNG terminal operating in Swinoujscie, with an import capacity of 6.2 bcm/year, plays a key role in ensuring natural gas supplies to Poland and other Central European countries. The infrastructure, which has been developed over the years, allows for the export of natural gas to southern Europe via the Poland-Slovakia interconnector and to the Baltic States via the Poland-Lithuania interconnector (GIPL). Significantly, the natural gas pipeline connecting Poland and Lithuania is reversible, which also allows natural gas supplies from the Klaipeda LNG terminal to Poland, which took place in 2023. The expansion of the terminal (construction of a third tank) is scheduled to be completed in 2024, and the increased import capacity will be 8.3 bcm/year. At the same time, work is underway on the construction of an FSRU-type LNG terminal in Gdansk with a regasification capacity of 6.1 bcm/year. With regard to sources of supply, it should be noted that the most important role in imports is played by the US and Qatar, which together accounted for 97% of supplies in 2023.
Lithuania. In the Baltic States, until recently, only the Klaipeda LNG terminal in Lithuania was in operation, with an import capacity of about 3.75 bcm/year, which allowed the market, primarily in the Baltic States, to be optimally supplied with natural gas. In 2023, natural gas supplies through this terminal declined by 7% compared to 2022. The reduced supplies were influenced by three factors. First – the continued process of diversification of natural gas supplies as a result of the Russian-Ukrainian war. Second – the opening of the Inkoo LNG terminal, which resulted in the Baltic states, which use the terminal, having part of their natural gas supplies – until the Balticconnector pipeline was damaged in October 2023 – were realized from Finland. Third – the difficult economic situation and high natural gas prices, which translated, among other things, into lower ammonia production by Achema (responsible for 50% of Lithuania’s natural gas imports). In terms of supply directions, there was a decline in imports from the US in 2023, but an increase from Norway. At the same time, there were also sporadic deliveries from Trinidad and Tobago and Nigeria during the period. Significantly, at the end of December 2023, AB Klaipedos nafta (as of January 10, 2024, LN Energies AB) and AB Amber Grid announced a non-binding Open Season procedure to test the companies’ interest in the terminal’s additional regasification capacity (2.5 bcm/year, meaning it could eventually have an import capacity of 6.25 bcm/year). The planned expansion of the terminal – if there is interest from market participants – would take place by mid-2026. The damage to the Balticconnector pipeline, which connects Finland and Estonia, prompted the Baltic states, including Estonia in particular, to increase imports through the Klaipeda LNG terminal.
Finland. There are four LNG terminals in Finland: in Pori, Tornio, Hamina and Inkoo, but only the last two have the ability to inject natural gas into the transmission system (the terminals in Pori and Tornio supply natural gas point-to-point, to companies operating in those cities). The terminals in Hamina (established in 2022) and Inkoo (2023 – a joint Finnish-Estonian project) have the biggest impact on the natural gas market. In 2023, the largest suppliers of natural gas to Finland were the US and Norway (combined 76%). Supplies from the Russian Federation (10%) were also noted, but Gasum does not make public information on when this contract will end. The Finnish government plans to stop such supplies on its own from 2025 (legislation is pending), due to the lack of sanctions at the European Union level. The Inkoo LNG terminal currently plays an important role in balancing the demand for natural gas in Finland alone, especially during the period of extreme cold weather, which occurred in early January 2024 (Gasgrid ordered an additional LNG tanker at that time).
Croatia. The Adriatic Sea region has a regasification terminal on the island of Krk in Croatia, and the country is slowly beginning to play an increasingly important role as a regional natural gas hub (“IEŚ Commentaries”, no. 829). In 2023, imports to the terminal fell by 11%, primarily due to very large deliveries in 2022 (up 45% from 2021). In terms of import destinations, it should be noted that the key role in 2023 was played by the US, as well as Trinidad and Tobago, which together accounted for 95% of deliveries. Currently, the terminal’s import capacity is 2.9 bcm/year, but is expected to increase to 6.1 bcm/year by 2025. Interest in increasing import capacity has been shown by Austria, Bosnia and Herzegovina, Slovenia, Hungary and Germany (the state of Bavaria), among others. A key element will be the expansion of transport capacity in the region (construction of new interconnectors).
Prospects for new terminals. The construction of new LNG terminals in Central Europe seems doubtful. Despite the consideration of various types of projects, the level of natural gas availability in the region is already ensured by existing terminals and pipelines. Therefore, there may be difficulties in fully utilizing new terminals. It is now known that an LNG terminal in Skulte, Latvia, will not be built in the region (“IEŚ Commentaries”, no. 993). On the other hand, the construction of a regasification terminal in Gdansk, where all import capacity is guaranteed by ORLEN S.A., is certain. At the same time, import capacity in Central European countries will increase with the expansion of terminals in Swinoujscie, potentially in Klaipeda, but also on Krk Island. There are currently plans for new terminals in Odessa (Ukraine) and Constanta (Romania), but the chances of these investments are limited due to the ongoing Russian-Ukrainian war and potential instability in the Black Sea region. Additionally, the lack of financial support from the European Union may be a problem, as the new list of projects of common interest (PCI) does not include investments in the natural gas sector (hydrogen projects, among others, may receive support).
Conclusion:
Due to the outbreak of a full-scale conflict between Russia and Ukraine, there have been several incidents involving air and missile threats, as well as air defence systems in the airspace of Central and Eastern European countries (CEEC). Certainly, some of these incidents have been intentional provocations by Russia against NATO, Ukraine or Moldova, aimed at pursuing a specific political agenda. To effectively counter these challenges, CEEC must enhance their technical capabilities, develop response procedures, and take action in the information dimension.
Context of the issue. The Russo-Ukrainian war’s entrance into the full-scale phase resulted in the use of almost full combat potential on both sides. Additionally, the conflict has extended over the entire territory of Ukraine and is being fought in multiple domains, including the air domain. Operations in the air domain have intensified since February 2022, with an increase in the number and types of weapons used. Due to the extensive shelling and Russia’s targeting of objectives near Ukraine’s western borders, there have been several incidents in non-war CEEC involving both Russian air and missile threats and Ukrainian defence systems. During the first weeks of the war, Russia targeted Yavorov (located 20 km from the border with Poland), Podolsk (located 20 km from the border with Moldova), and later Izmaile (on the border with Romania).
Main incidents. In March 2022, a Tu-141 unmanned aerial vehicle (UAV) crashed in Zagreb, Croatia. The UAV had been in Romanian airspace for approximately three minutes and then in Hungarian airspace for about 40 minutes before entering Croatian airspace. Both the Romanian and Hungarian governments confirmed that they had detected the object and were tracking its flight. The Tu-141s are capable of undertaking both reconnaissance and strike tasks and are used by both the Russian and Ukrainian armed forces. However, both sides in the conflict have denied ownership of the UAV. According to Mario Banožić, then Croatian Defence Minister, the UAV that crashed in Zagreb was armed.
In October 2022, as part of a massive shelling of Ukraine, three cruise missiles were launched from Russian ships in the Black Sea and flew over Moldovan territory. In February 2023, a similar incident occurred. The Ukrainian authorities even reported that the missiles had violated Romanian airspace, but the Romanian Ministry of Foreign Affairs strongly denied these reports. In connection with the attacks on Ukraine (for instance the Dniester Hydroelectric Power Station located about 14 km from the Moldovan border) the Moldovan authorities numerous times reported finding missile debris on their territory. The debris could have originated from either Russian missiles or Ukrainian defence systems. The air and missile defence systems of the Moldovan armed forces are outdated and underdeveloped, consisting of post-Soviet S-200 and S-125s. As a result, Moldova can only monitor the overflight of modern cruise missiles. In response to recent events and technological backwardness, President Maia Sandu has requested financial assistance from Western partners to develop Moldova’s air defence. In December, the Moldovan armed forces received a Ground Master 200 mobile air defence radar, purchased from the French company Thales with funds from the Moldovan defence budget.
On 29 December 2023, during a massive attack on Ukraine, a Russian cruise missile (Kh-55/Kh-101) violated Polish airspace and stayed there for about 3 minutes. In April of the same year, fragments of a Russian Kh-55 missile were found near the town of Zamość, close to Bydgoszcz, Poland. Additionally, in March 2022, the remains of a Russian-made Orlan-10 unmanned surveillance aircraft were discovered in the municipality of Dumitra, Romania, about 70 km from the border with Ukraine. In December 2023, the Romanian Ministry of Defence reported the identification of a 1.5m deep crater on the Danube delta near the village of Grindu, about 6km from the Ukrainian border. It is likely that there are more incidents like this in countries bordering Ukraine, but it is difficult to estimate their number precisely.
Due to the extensive nature of the conflict, a significant number of assault and defence measures have been employed in the air domain, resulting in incidents involving also Ukrainian surface-to-air systems. The most severe of these incidents occurred on 15 November 2022, when a 5W55 missile fired from Ukraine’s S-300 air defence system exploded, killing two individuals in Przewodów, Poland.
It is important to emphasise that provocations involving aircrafts are also taking place. NATO agencies reported that in 2023, the Alliance’s air force intercepted Russian aircraft approaching the airspace of NATO countries over 300 times. The majority of these incidents occurred over the Baltic States, where airspace violations have been a regular occurrence for several years. Other NATO countries, such as Romania (for example, an airspace violation by a Shahed 136 drone in December 2023) and Poland (for instance, Belarusian Mi8 and Mi24 helicopters in August 2023), have also experienced similar provocations.
Russia’s objectives. Regarding Russia’s actions, it is important to note that not all incidents involving violations of the airspace of CEEC, other than Ukraine, were necessarily intentional. Due to the scale of attacks, it is possible that some systems experienced failures. The proximity of the theatre of war naturally caused air assault measures to enter, and in some cases, deeply penetrate the airspace of CEEC. Fragments of Russian missiles or UAVs found in these countries’ territories may have been downed by Ukrainian defence systems. However, these factors do not absolve Russia of responsibility. It is clear that a significant proportion of the events discussed were deliberate actions.
From a theoretical perspective, Russia’s objectives can be divided into purely military and political. Military speaking, at the current level of escalation of the conflict between NATO and Russia, Russia’s actions are primarily aimed at gathering technical information to gain an advantage in terms of the weaponry used. This data could include the speed at which NATO countries launch their machines to intercept enemy flying objects, their combat readiness (such as the type of armaments fighter jets are equipped with and the time they can remain operational in the air), or the identification of defence systems’ radar emission parameters. It is possible for Russia to collect the radar emission parameters when NATO countries attempt to shoot down an enemy object. Therefore, the shooting down of a missile, particularly during peacetime, may not always be a cost-effective measure. Launching missiles over CEEC’ territories may also serve to reduce the distance of a missile aimed at targets in Ukraine or to deceive the Ukrainian defence systems.
The catalogue of Russia’s political objectives is much broader. After all, the armed forces are merely an instrument that enables the state to meet its political objectives. Any incident involving a violation of airspace can undermine citizens’ confidence in their state’s institutions. The potential for incidents of this nature to cause information chaos is due to the limited common knowledge of air and missile defence systems and their capabilities. One should bear in mind that it is not always feasible to intercept a cruise missile travelling at several hundred kilometres per hour (up to approximately 900km/h for Kh-55 or Kh-101) that only remains in a state’s airspace for a few minutes. The decision-making process is typically longer than that. Furthermore, it is important to note that air and missile defence systems cannot secure the entire territory, but are typically deployed around critical infrastructure. In times of peace, the patrols of fighter jets in Central and Eastern European countries are not continuous mainly for economic reasons. Additionally, knocking down a hostile target may not always be advisable due to the desire to conceal radar emission parameters or the inability to control the remnants of a hit/dropped missile, which may hit inhabited areas.
The incidents discussed in this text can be used to undermine confidence in NATO, its effectiveness and procedures for cooperation between Allies, as exemplified by the UAV crash in Zagreb. Additionally, these incidents can be used as a tool of pressure and a threat when policies that go against Russia’s interests are being pursued. This is especially relevant for Moldova, which is not covered by Allied security guarantees. However, it is important to note that NATO countries are not entirely immune to this pressure. In their case, such pressure may contribute to increased support for the ‘peace policy’ or decreased willingness to continue supporting Ukraine. Furthermore, incidents related to Ukraine’s air and missile defence systems could cause bilateral tensions, which may also reduce Western support for the country.
Conclusions. In recent months, Russia has intensified its provocations against NATO and transferred them into new dimensions. The tactic of ‘salami slicing’ to slowly push the boundaries of its actions and test how far it can go without exposing itself to the consequences remains a constant feature of Russia’s modus operandi. By taking incremental rather than leapfrog actions, Russia is ‘taming’ its adversaries to these kinds of incidents. Russia’s military measures in air domain serve broader political objectives, primarily to lower public confidence in state institutions, undermine allied guarantees within NATO, create dividing lines between allies (divide et impera) and reduce the level of support for Ukraine. From NATO’s perspective, countering these types of challenges requires a continuous improvement in the technical capabilities of the armed forces, the development of collective response procedures, and operations in the cognitive space to reduce Russia’s negative impact on societies.
Central European countries in 2023 were taking active steps to strengthen energy security, which was a difficult process. A key strategic objective was to reduce dependence on hydrocarbons supplies from the Russian Federation by initiating new investments and continuing those already underway. Importantly, there are still countries on the continent that cooperate with Russia in the supply of both crude oil and natural gas (in this case, sanctions have not been implemented at the European Union level).
Natural gas market. In 2023, many Central European countries continued their efforts to increase the security of natural gas supplies, due to the ongoing Russian-Ukrainian war. The measures taken can be divided into three groups.
The first – continued efforts to reduce the share of natural gas supplies from the Russian Federation. In this context, there has been both the new contracts with producers of this commodity and the expansion of the relevant import and transport capacities. Two countries played a key role in ensuring energy security. The first was the US, the world’s largest exporter of LNG in 2023, which increased natural gas supplies to Europe by 7.6% compared to 2022. At the same time, imports from this direction together accounted for about 62% of all LNG supplies to Europe. The second major player was Azerbaijan, which increased its natural gas exports to Europe by 3.5% compared to 2022. Specifically, supplies from this country affected the market of countries in the south of the continent (“IEŚ Commentaries”, no. 937).
The second – expansion of import and transportation capacity in the region. Although no new regasification terminals were put into operation in Central European countries in 2023 (two FSRU terminals in Finland began operation in 2022), there was an increase in import capacity across Europe (new 4 terminals, but only in Western Europe: two in Germany, one in Italy and one in France). Growing import capacity will translate into increased natural gas trade in the region. However, it is crucial to ensure the safety of critical infrastructure, as highlighted, among other things, by the failure of the Balticconnector pipeline connecting Finland and Estonia in October 2023. At the same time, in Poland, the construction of the FSRU terminal in Gdansk is underway[1] . In Latvia, on the other hand, the government has withdrawn support for the implementation of the Skulte LNG terminal project (“IEŚ Commentaries”, no. 993). The Bulgaria-Serbia interconnector was put into operation in 2023 (“IEŚ Commentaries”, no. 915), and work continues on the implementation of further investments to strengthen the region’s energy security. These types of activities can make countries such as Bulgaria (“IEŚ Commentaries”, no. 864) and Croatia (“IEŚ Commentaries”, no. 829) play an important role on the energy map of Europe.
The third – strengthening the state’s position in the energy sector, which is well illustrated by the Chechia’s policy. A reorganization of the natural gas sector has taken place here: companies under state control have taken stakes in the companies responsible for transporting and storing this resource (“IEŚ Commentaries”, no. 976).
Oil market. A characteristic feature of Central European countries is that almost all of the crude oil used in refineries is imported. Over the years, the Russian Federation has been the main supplier of crude oil, with imports taking place primarily through the Druzhba pipeline (supplies to Poland, Germany, Slovakia, Czechia, Hungary) and through seaports on the Black Sea (Bulgaria and Romania) and the Adriatic Sea (Croatia). There have been no significant changes in supply destinations in 2023 compared to 2022. Among the countries listed are those that continue to import crude oil from the Russian Federation (Czechia, Slovakia, Hungary, Bulgaria, Romania – mainly based on the derogations received for the sanctions in place, some of which expire in 2024), as well as those that have become fully independent of supplies from the East (Poland, Lithuania). Regardless of the sanctions in place, in some cases the Russian Federation remains the de facto supplier, although Kazakhstan is then indicated as the source of the crude oil (“IEŚ Commentaries”, no. 1000).
In Central European countries, efforts to diversify the sources and directions of crude oil supplies are being made on the basis of already existing infrastructure. The exception is Czechia, where work continues on the expansion of the TAL pipeline to increase crude oil imports to refineries in Czechia (via the IKL pipeline). In the Balkans, talks have resumed on the Burgas-Alexandropolis pipeline project in 2023 (“IEŚ Commentaries”, no. 808), while it is difficult to determine whether the investment initiated in 1993 (which at the time envisaged oil deliveries from Burgas in Bulgaria to Alexandropolis in Greece, bypassing the Turkish straits, and the option of carrying out deliveries in the reverse direction is currently under consideration) will be realized here.
In the context of refinery operations, there are no significant changes in 2023. Only the government in Bulgaria is taking steps to reduce the influence of the Russian Federation on the country’s fuel sector (the option of nationalizing the Burgas refinery is under consideration).
Conclusions:
[1] Two FSRU-type LNG terminals were planned in Poland in the Gulf of Gdansk (6.1 bcm/year and 4.5 bcm/year), but ultimately the Open Season procedure ended without resolution for the second, smaller of the planned terminals. Such a situation is the result of the November 23, 2023 agreement between CEZ from Czechia and Hanseatic Energy Hub from Germany for the reservation of import capacity at the planned LNG terminal in Stade (“IEŚ Commentaries”, no. 1021).
In 2023, five Central European economies (Estonia, Lithuania, Hungary, Latvia, and the Czech Republic) are expected to end the year in a state of recession, while four (Hungary, Czech Republic, Poland, and Slovakia) are facing double-digit average annual inflation. Furthermore, as many as seven countries in the region are projected to record budget deficits exceeding 3% of GDP. However, economic forecasts for the coming years indicate that the economies of Central Europe will return to a path of economic growth and price stabilization, which may also contribute to the balancing of their public finances.
Deceleration of Economic Growth. The year 2023 brought a significant slowdown in the economic growth of Central European economies. According to forecasts by the European Commission (EC), as many as five countries in this region are expected to end this year in recession, including the three Baltic states. Out of them, the highest predicted GDP decline is faced by Estonia (-2.6%), followed by Lithuania (-0.4%) and Latvia (-0.2%). This is primarily due to decreased demand both in domestic markets and in important external markets (mainly Scandinavia and Germany). Recession is also predicted for Hungary (-0.7%) and the Czech Republic (-0.4). The Polish economy is expected to end 2023 on a positive note (0.4%), but its result remains below the forecasted EU average (0.6%). Economic growth above this average is expected in the southern countries of the Central European region: Slovakia and Slovenia (each 1.3%), Bulgaria (2.0%), Romania (2.2%), and Croatia (2.6%) („Komentarze IEŚ”, nr 988). It is worth noting that in the case of the latter, this is not only the best result among the Central European countries but also the second-best in the entire EU (after Malta).
Persistently High Inflation. A significant challenge for the economies of Central Europe in 2023 continued to be inflation („Komentarze IEŚ”, nr 914). According to forecasts by the European Commission (EC), the average annual inflation in all of these countries is expected to be higher than the average for the entire EU (6.5%). The highest, double-digit figures are expected to be recorded by the Visegrád Group countries: Hungary (17.2%), Czech Republic (12.2%), Poland (11.1%), and Slovakia (10.8%). The Baltic states are also expected to end 2023 with high inflation, with the highest in Latvia (9.6%), followed by Estonia (9.4%) and Lithuania (8.8%), which is similar to the other Central European countries: Romania (9.8%), Bulgaria (8.8%), Croatia (8.1%), and Slovenia (7.5%).
Restoring the Stability of Public Finances. The stability of the public finance system in Central European countries that are members of the EU is measured by maintaining budget deficits and public debt at levels lower than those specified by the Maastricht criteria: 3% of GDP in terms of deficit and 60% of GDP in terms of debt.
According to Eurostat data, starting from a historically high level of 6.7% of GDP in 2020, the budget deficit in the EU fell to 3.3% in 2022 and is forecasted to reach 3.2% in 2023 („Komentarze IEŚ”, nr 916). The ongoing economic expansion in most European Union countries in previous year, particularly the improvement in cyclical components of the budget and discretionary policies, generally favoured the reduction of budget deficits. However, among the eleven Central European countries analysed, as many as seven are expected to have budget deficits in 2023 exceeding the threshold set by the Maastricht criteria: Romania (6.3%), Slovakia (5.7%), Poland and Hungary (both 5.8%), the Czech Republic (3.8%), Slovenia (3.7%), and Latvia (3.2%) („Komentarze IEŚ”, nr 939, „Komentarze IEŚ”, nr 941). Bulgaria (3%) and Estonia (2.9%) are expected to be on the threshold, while Lithuania (1.6%) is below it. Meanwhile, the smallest budget deficit among the analysed countries is expected in Croatia (0.1%), which, in 2022, was preparing to join the Eurozone on 1st January 2023 („Prace IEŚ”, nr 3/2021, „Komentarze IEŚ”, nr 320)
Relatively Safe Public Debt. However, the ratio of public debt to GDP in various Central European countries is at a relatively safe level and is much lower than the EU average (83.1%). In 2023, Estonia is expected to lead Central European countries with the lowest level of debt (with public debt at 19.2% of GDP), followed by Bulgaria (23.5%). Lithuania and Latvia are expected to follow (with 37.3% and 41.7%, respectively). Higher debt ratios are expected in the Czech Republic (44.7%), Romania (47.9%), Poland (50.9%), and Slovakia (56.7%). Only three countries are expected to exceed the threshold set by the Maastricht criteria: Croatia (60.8%), Slovenia (69.3%), and Hungary (69.9%).
It is also worth noting that high inflation contributes to the reduction of the public debt-to-GDP ratio. For example, in the EU, the overall debt-to-GDP ratio fell from a historically high level close to 92% at the end of 2020 to 85% in 2022. This significant decrease of 7 percentage points was partly due to the previously mentioned effect of inflation and partly due to the economic recovery after the pandemic.
Low Unemployment. Despite the slowdown in economic activity, the economies of Central Europe are characterized by relatively low unemployment rates. According to forecasts published by the EC in 2023, the lowest rates are expected in the Czech Republic (2.4%), Poland (3.0%), and Slovenia (3.6%). They are followed by Hungary (4.1%), Bulgaria (4.2%), Romania (5.4%), and Slovakia (5.7%). However, higher unemployment rates are expected to be recorded in Croatia (6.5%), Latvia and Lithuania (both 6.8%) („Komentarze IEŚ”, nr 887, „Komentarze IEŚ”, nr 902), and Estonia (7.0%).
These rates do not cause significant tensions in the labour market and should not contribute to weakening the effective implementation of policies to reduce budget deficits in the coming years. Additionally, in some countries, non-fiscal factors contribute to the reduction of unemployment and ensuring internal balance. These include an aging population, low birth rates, and emigration. For example, long-term trends in the Latvian labour market reveal a decline in population – since 2000, it has decreased by over half a million, which constitutes about one-fifth of the population at the beginning of this period („Komentarze IEŚ”, nr 887). In this context, despite a fundamentally stable unemployment rate, the EC draws attention to the growing problem of labour shortages in EU countries.
Conclusions and Forecasts. In 2023, the economies of Central Europe experienced a clear slowdown in economic growth, persistent price increases, and deepening debt. According to forecasts by the European Commission, five countries in the region are expected to end the year in recession, four with double-digit average annual inflation, and seven with a deficit exceeding 3% of GDP.
However, forecasts for the next year provide reasons for cautious optimism. They are based on the assumption that the economic situation will stabilise and inflation will slow down, which will increase the purchasing power of households, thereby boosting consumption. As a result, it is predicted that in 2024, all the economies of Central Europe will return to the path of economic growth. Moreover, forecasts for the next year indicate a reduction in budget deficits in most of the countries of the region under study.
The analysis covers Central European countries that were admitted to the EU after 2004 (i.e., Bulgaria, Croatia, the Czech Republic, Estonia, Lithuania, Latvia, Poland, Romania, Slovakia, Slovenia, and Hungary). Data source: European Commission.
The lack of success in the counteroffensive has sparked a lively debate in Ukraine regarding the situation on the front and the overall state of the country. The prolonged war of attrition is advantageous for the Russian Federation, which has the necessary resources to continue its aggression. Russia counts on weakening Kyiv as well as tiring its allies and reducing the scale of support. The coming year may be decisive for the fate of the Russian-Ukrainian war.
The counteroffensive and its effects. The approaching winter, leading to a decrease in the intensity of military operations, encourages Ukrainian politicians and military officials to assess the progress of the Ukrainian counteroffensive in the south and east of the country. In the context of this debate, the interview of the Chief Commander of the Ukrainian Armed Forces, Gen. Valerii Zaluzhny, for the British magazine “The Economist” on 1 November 2023, gained significant attention. He emphasizes the threat associated with the slowdown of the Ukrainian counteroffensive in the context of the ongoing war. Gen. Zaluzhny, referring to the modest successes of the Ukrainian army, highlighted that they are a result of the Russian army’s superiority in many key areas of warfare, including the air force, the number of soldiers, and mobilization potential. The challenges posed by extensive fortification systems and minefields, sometimes reaching widths of 15-20 kilometres, are also not insignificant. Clearing them is extremely troublesome due to the risk of shelling and the possibility of the opponent using overlay mine systems. Additionally, the use of counter-battery systems by Ukrainian forces hinders the increasingly effective use of Russian electronic warfare systems that disrupt GPS signals, reducing the accuracy of GPS-guided missiles and rockets and impeding drone operations. Russians have good battlefield awareness, missile systems, and drones capable of reaching practically any point on Ukrainian territory. This not only complicates the concentration of forces before a potential attack on Russian positions but also hinders the training of reserves deep within the country.
The problem is also the Russian dominance in many areas as well as the consistently increasing efficiency of the Russian arms industry and, despite sanctions, significant financial reserves. Ukraine is not able to independently confront the aggression of the Russian Federation and is currently dependent on international assistance, primarily from the United States. Thanks to external military support and the involvement of the Ukrainian army and society, Russian attacks are being repelled.
In his essay attached to the interview, Gen. Zaluzhny explains that the lack of success in the Ukrainian offensive is not due to leadership mistakes but is a consequence of problems with the rapid supply of equipment from the West. Without clear technological superiority, achieving dominance on the battlefield is not possible, especially since the Russians continuously adjust their tactics to the current situation. The lack of delivery of long-range missile systems allowed Russia to create fortifications (the so-called Surovikin Line). Meanwhile, delays in the delivery of modern multirole combat aircraft will allow the Russian army to expand its air defence system based on the S-400 missile system, which will be able to counter the use of these aircraft on the front line.
Without breaking Russian dominance in the air, accelerating the demining process, improving the effectiveness of artillery and counter-battery fire, creating and training reserves, and improving the efficiency of electronic warfare systems, a breakthrough on the battlefield will be impossible. This could lead to stabilizing the front line, which would be disadvantageous for Ukraine.
Western doubts. During his September visit to Washington, President Zelensky was coldly received by some politicians, mainly Republicans. He was prevented from addressing Congress, and uncomfortable questions arose about the counteroffensive, reform issues, and, above all, the fight against corruption. The change in the attitude of some American elites is linked to political manoeuvring ahead of the US presidential elections. President Zelensky tried to persuade the audience that the USA “gives their money, and we give our lives,” but it did not resonate with Republicans, who demanded the exclusion of aid for Ukraine from next year’s budget. Additionally, the attack by Islamic fundamentalists from Hamas on Israel focused the attention of the American public on the situation in the Middle East (“IES Commentaries”, No. 990).
Another attempt to allocate funds for Ukraine was the aid package for US allies proposed by President Joe Biden on 20 October 2023, already after the Hamas aggression against Israel, which amounted to USD 105 billion and included, among other things, funds for Israel, support for border services on the Mexican-American border, and assistance for Ukraine in the amount of USD 61 billion. The US president described it as a “wise investment” that would positively impact American security for generations. However, this argument did not convince Republicans, who demanded separate consideration of aid for Israel and Ukraine. In the temporary financial law, replacing the budget and valid until early 2024, no funds were allocated for assistance to either Ukraine or Israel.
Unofficially, among some Western politicians, the view that Ukraine is unable to militarily defeat the Russian Federation is gaining popularity, so diplomatic options need to be considered. However, it should be emphasised that both the President of Ukraine and the overwhelming majority of the Ukrainian population are opposed to any concessions to Russia. According to surveys by the Kyiv International Institute of Sociology (KIIS) in September 2023, 87% of respondents are not willing to make any territorial concessions to Russia. Moreover, as key Ukrainian political and military decision-makers highlight, a ceasefire could serve the Kremlin by enabling it to gain time, gather the necessary resources, and resume fighting at the most opportune moment.
The key problem, both for the European Union and the United States, is the fear of escalating the conflict. This leads to a limitation of military aid to Ukraine, allowing it to “survive” but not to achieve victory. Additionally, EU member states do not always fulfil promises regarding arms deliveries. This was the case with, among others, France and Germany. Ukraine is also counting on the delivery of German long-range Taurus missiles. Furthermore, the European Union has failed to increase the supply of artillery ammunition to a million units annually, and it is uncertain whether this will be possible in the near future.
War of Attrition: Dilemmas of Ukrainian Politics. In the interview and essay by Gen. Zaluzhny published in “The Economist”, the main concern was primarily the threat of the Russian-Ukrainian war turning into a positional war, best known from World War I on the Western Front. However, at the same time, another article appeared in the influential magazine “Time” (30 October 2023), in which the statements of anonymous advisors to Zelensky regarding defeatist moods around the president, his lack of will for peace talks with the Russian Federation as well as problems with corruption (including in the Ministry of Defence) and difficulties related to mobilization, stirred the greatest controversy. One anonymous advisor was reported to have said that even if Ukraine received all the equipment it asked for from the West, there were no soldiers capable of operating it.
In an interview for Radio Svoboda on 31 October 2023, Mykhailo Podolak, an advisor to the head of the Ukrainian President’s Office, disputed the claims in the “Time” article. He suggested that one of the anonymous sources of the author, Simon Shuster, could be the scandalous former advisor to the head of the Ukrainian President’s Office, Oleksiy Arestovych, who accused Zelensky of dictatorial tendencies and announced his candidacy in the upcoming presidential elections. However, Shuster unequivocally stated that he received the information from active advisers of the president. The Secretary of the National Security and Defence Council of Ukraine (RNBO), Oleksiy Danilov, emphasised that Ukraine is conscripting a steady number of people but does not rule out problems with replenishing shortages on the front over time. On the same day, the head of the Ukrainian President’s Office, Andriy Yermak, during a speech at the Hudson Institute in Washington on 13 November 2023, called on Ukraine’s allies, reminding them that the next year will be decisive in terms of the fate of the war. Therefore, it is necessary to intensify sanctions against Russia and increase assistance to Ukraine. At the same time on the same day, the head of the Main Intelligence Directorate of the Ministry of Defence (HUR), Kyrylo Budanov, stated that the war could be extremely long because Russia is not ready for peace talks with Ukraine and possesses significant strategic reserves.
President Biden, Gen. Zaluzhny, and President Zelensky, in their statements, emphasise that the attack on Israel and the Russian aggression against Ukraine are examples of aggression by anti-democratic forces seeking to change the international order. Additionally, Gen. Budanov and the President of Ukraine highlight that the lack of rapid support for Ukraine could result in the conflict spreading to other areas. On 10 October 2023, Zelensky accused Russia of supporting Hamas in the context of its aggression against Israel, and on 16 November in a conversation with African journalists, he hinted that Russia may soon seek to destabilize the Balkans and Moldova, exploiting the world’s focus on the situation in the Middle East.
Conclusions
The interview and essay by Gen. Zaluzhny, combined with the limited successes of the Ukrainian counteroffensive, have sparked a lively discussion in Ukraine about the future of the war and the potential transition to a positional phase with all its consequences. At the same time, Ukraine is currently facing the threat of losing American aid, which is partly a political manoeuvre between the Republican and Democratic camps ahead of the US presidential elections. Therefore, Ukrainian politicians, led by President Zelensky, are trying to convince Western politicians and societies to continue assisting Ukraine. This is becoming increasingly challenging because global attention is now focused on the situation in the Middle East, and polls in the USA and certain EU countries confirm gradually decreasing public support for such actions. Without significant assistance from the West, Ukraine is unable to continue effectively defending against Russian aggression. However, the fears of some Western countries about the escalation of the conflict hinder the increase in military support. The problem is also that the resources of some allied countries are insufficient to continue aid at the current level, and the production of weapons is unable to meet the needs of the Ukrainian army. Without a significant change in the West’s strategy towards Russia’s aggressive posture, without a clear increase in comprehensive support, Ukraine may not be able to continue the prolonged war of attrition, the consequences of which may extend far beyond the Eastern European region.
The Russian-Ukrainian war has reoriented the refining sector in the Central European region, including Bulgaria and Romania. The crude oil processing plants operating in these countries had for years imported a large amount of crude oil from the Russian Federation. The change in international conditions has contributed to the activation of efforts to diversify crude oil supply sources. Nevertheless, the refineries in Bulgaria and Romania face numerous challenges due to the ownership aspect (Lukoil controls two of the four plants) and the availability of non-Russian crude oil in the region.
Specifics of the crude oil sector. A total of four refineries operate in Bulgaria and Romania, with a total refining capacity of about 374 thousand barrels per day (about 3% of the refining capacity of all refineries in Europe). Bulgaria operates the most modern and largest refinery in the region, in Burgas (140 thousand barrels per day), which imports crude oil through the Rosenec oil terminal on the Black Sea. The plant is owned by Russia’s Lukoil through Lukoil Neftochim Burgas, which is subject to international sanctions imposed on the Russian Federation over its full-scale attack on Ukraine in February 2022. Nevertheless, the plant can, based on the derogation granted, import crude oil from Russia by sea until the end of 2024. In terms of technological sophistication, it is a semi-complex refinery of the fuel type with the highest Nelson complexity index in the Balkans, which determines the complexity of the crude oil processing (13 points)[1].
Romania, on the other hand, has three plants with a combined capacity of 234,000 barrels per day. One is located in Năvodari on the Black Sea (Petromidia – 100 thousand barrels per day), while two are in Ploiesti, in the central part of the country (Petrobrazi – 84 thousand barrels per day and Petrotel – 50 thousand barrels per day). They process different grades of crude oil, and deliveries are made through two oil terminals, one in Constanta (supplying crude to the Ploeshti refinery) and one in Midia (supplying the Năvodari refinery). In this case, the ownership is different: the Petromidia refinery is owned by Rompetrol Rafinare, which is owned by the Kazakh government-controlled KMG International (54.63% – a subsidiary of the Kazakh company KazMunayGas) and the Romanian government (44.7%), the Petrobrazi refinery – by OMV Petrom S.A. (a subsidiary of the Austrian government-controlled OMV AG), while Petrotel – by the Russian company Lukoil. Considering technological sophistication, these are semi-complex fuel plants with an average Nelson coefficient (Năvodari – 11.4 points, Petrobrazi – 8.8 points, and Petrotel – 10.0 points)[2]
Directions of crude oil supplies to Bulgaria. The war and the sanctions imposed on the Russian Federation have led to significant changes in crude oil imports to the refinery. In 2022, there was a significant reorganization of the directions of crude oil supplies to the Burgas refinery, which received a derogation for importing crude oil from Russia until the end of 2024 (“IEŚ Commentaries”, no. 707). Taking into account the indicated conditions, in 2022 the refinery increased crude oil imports from the Russian Federation by a total of 163%. There was also an increase in crude oil throughput at the plant during this period, as partial overhaul work took place in 2021, which contributed to a decline in fuel production. In 2022, crude oil supplies from Iraq also increased (by 52%), while there were no imports from Saudi Arabia (both directions are of minimal importance in crude oil supplies). As for the Burgas refinery, both in 2021 and 2022, the port of Kalamata in Greece, which is now one of the key transhipment points for Russian crude oil in the Mediterranean (in addition to ship-to-ship operations), was used for crude oil imports from the Russian Federation. In many cases, crude oil from Russia delivered to this port is then transshipped to other tankers. There is speculation that it then figures in the statistics as crude oil not originating from Russia[3]. So far in 2023, other grades account for only a small portion of the crude oil processed at the refinery (about 8%). Thus, the plant maximizes the processing of Russian crude oil, despite the Sofia government’s efforts to reduce the existing dependence. For this reason, Lukoil Neftochim Burgas lost its concession for the exclusive use of the Rosenec terminal in 2023 (the company had been allowed to use it since 2011 for a period of 35 years).
Crude oil imports to Romania. Compared to Bulgaria, Romania’s refining sector has different characteristics for three reasons; firstly, the operation of three independent plants in the market, secondly, their high diversity of ownership, and thirdly, two different supply channels: one through the crude oil terminal in Constanta, and another in Midia. These factors led to a decline in crude oil supplies from the Russian Federation in 2022, while crude oil from that country already accounted for only 43% of the grade processed at the facilities compared to 79% in 2021. Importantly, until September 2023, crude oil from Russia officially accounted for only 4% of total supplies. In contrast, crude oil deliveries to Romanian facilities from Kazakhstan (CPC Blend and KEBCO[4] grades) increased during the period. However, the KEBCO grade is a problematic issue in these supplies. It was introduced by Kazakhstan in 2022 to differentiate the country’s crude oil from Russian crude, as the loading of both Russian and Kazakh crude oil onto tankers takes place at the Novorossiysk terminal in Russia (“IEŚ Commentaries”, no. 753). Importantly, there are currently no specifications available for the KEBCO grade (the so-called crude assay)[5], so there are suspicions that it may be Russian crude oil sold under a different name (among other things, Kazakhstan does not produce Urals-like crude oil, its export policy is conducted within the framework of the OPEC+ agreement, and production remains at a level close to 2022). Under this assumption, assuming the volume of supplies of this grade of crude oil from Kazakhstan together with supplies from the Russian Federation, the share of these grades in the processing of crude oil in all refineries in Romania would be at the level of 66% in 2022 and 50% in 2023. Under such conditions, crude oil from Russia would continue to be the main source of supply. At the same time, it should be pointed out that the share of crude oil supplies from countries other than Russia and Kazakhstan in 2022 was 18%, and in 2023 this share rose to 32%.
Conclusions
[1] In comparison, refineries in Poland have a slightly lower ratio, namely Gdansk: 11.1 points; Plock: 9.5 points. The higher the ratio, the more high-margin products a refinery is able to produce from a barrel of crude oil as well as having more opportunity in selecting the grades it processes.
[2] On the crude oil sector in Central European countries, see M. Paszkowski, Przemysł rafineryjny w państwach Europy Środkowej: uwarunkowania, wyzwania, perspektywy, “Prace IEŚ”, no. 4, Lublin 2022.
[3] R. Perkins, Tanker switching for Russian oil hits record high as sanctions kick in, 8 March 2023, https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/oil/030823-tanker-switching-for-russian-oil-hits-record-high-as-sanctions-kick-in [20.10.2023].
[4] KEBCO: Kazakh Export Blend Crude Oil.
[5] T. Filiński, Kazachska ropa z Rosji w Niemczech to pole do szantażu energetycznego Putina, 23 February 2023, https://biznesalert.pl/ropa-kazachstan-niemcy-ropociag-przyjazn-mieszanie-omijanie-sankcji/ [15.11.2023].
