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Jun 23, 2022
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Russia’s response will deal a severe blow to the Lithuanian economy

The Kaliningrad region was trapped because of the actions of Lithuania. It stopped the transit of simple consumer goods from Russia to Kaliningrad, including cars. Unofficially, there has already been talk about Lithuania cutting off gas supplies to the Russian exclave. What threatens Kaliningrad with a complete land blockade, and how can Russia respond?

Lithuania in its anti-Russian zeal has gone too far. It banned the Russian transit of goods through Lithuania to Kaliningrad. Moreover, Lithuania may soon cut off gas supplies to the Kaliningrad region, which pass through the Minsk-Vilnius-Kaunas-Kaliningrad pipeline, Croatian media write, citing sources. Lithuania presents the situation as the implementation of EU sanctions, but Moscow sees this as a deliberate imposition of tougher restrictions on Russia.

Moscow demanded that the illegitimate restrictions be lifted immediately, but Lithuania ignored this. Therefore, Russia will take retaliatory measures, and its response will not be diplomatic, Foreign Ministry spokeswoman Maria Zakharova promised, but a practical one. Response measures are already being worked out by departments.

“A full-fledged land blockade of Kaliningrad can significantly complicate the lives of ordinary residents. First of all, there may be problems with the delivery of simple consumer goods, including food and groceries. Secondly, with the export to Russia of the products of Kaliningrad enterprises, which are strongly tied to the all-Russian market, ”says Sergei Kondratyev, deputy head of the economic department of the Institute of Energy and Finance.

For example, problems arise with the transportation of cars from the Avtotor plant in Kaliningrad by rail through Lithuania to Russia. If the restrictions are not lifted, then cars will have to be delivered by sea, for example, using the Baltiysk-Ust-Luga ferry line.

This will require the government to take measures to subsidize shipping by sea and the delivery of goods across Russian territory due to the lack of land transit, which was economically more profitable to use.

But the energy blockade, the risks of which have seriously increased, Kaliningrad will survive quite easily. There is nothing surprising in this – Russia has done a lot for this in recent years, prepared. Kaliningrad has a large set of options so that in the event of a blockade, the power supply of the “island” would not be disrupted.

“If the transit of gas through the gas pipeline through Lithuania to the Kaliningrad region is stopped, then, firstly, deliveries of Russian LNG from the Leningrad region to Kaliningrad will be promptly arranged. Secondly, over the past seven to eight years, large coal-fired power plants have been introduced in the region as a backup capacity in case LNG supplies are somehow limited.”

says Kondratiev.

Delivering coal by sea to Kaliningrad is not a problem at all. Last year, coal-fired power plants practically did not work in the region, because there was no need for them. “Domestic consumption was fully covered by the Kaliningrad CHPP-2 and other gas facilities. From an economic point of view, gas generation is, of course, more profitable, but this is under normal conditions. When there is a question of safety, it is quite normal to burn coal,” says Kondratiev.

It is curious that if Lithuania decides to block the gas pipeline through which Russian gas is transited to Kaliningrad, then this will be the first unique case, the expert notes. Never before has a transit country itself stopped the transit of gas through its own territory, on which it actually earns (receives money for pumping), where its own employees work, etc. The stoppage of gas transit to Europe through the pipeline has occurred over the past twenty years three times and was associated with Belarus and Ukraine. Then the transit was stopped by the gas supplier due to the illegal selection of “foreign” gas by the transit company.

Russia has not only prepared a back-up infrastructure for Kaliningrad’s energy security, but also conducted all sorts of exercises and tests of these new systems. For example, in the winter of 2021, at the initiative of Gazprom, gas supplies through the pipeline to Kaliningrad were stopped.

So far, Russia has maintained a fairly benevolent attitude towards Lithuania. For example, Lithuanian products remain on Russian shelves. “However, if Russia is interested in Lithuania lifting the ban and the transit situation normalizing, then Russia’s retaliatory sanctions should not be diplomatic, but have a tangible effect on the Lithuanian economy and budget,” Kondratyev said.

In this regard, the experience of China is indicative. “When Lithuania began to establish closer contacts with Taiwan, China considered this an unfriendly step and immediately refused to purchase Lithuanian goods and excluded Lithuanian transport companies from the One Belt, One Road project. This experience has shown that the Lithuanian leadership is ready to accept and enter into some kind of negotiations only after such tough actions,” the expert of the Institute of Energy and Finance notes.

Therefore, the first thing Russia can do in response is to refuse to buy Lithuanian goods and prohibit their re-export through other EU countries, so that Lithuanian goods cannot enter the Russian market through neighboring Latvia, for example. That is, an export ban should be introduced not by the supplier country, but by the origin of the goods.

Secondly, Russia may ban the supply of goods sensitive to Lithuania from Russia.

“Moscow may impose sanctions against Lithuanian energy companies, following the example of how it responded to Polish sanctions against Gazprom and Novatek. For Lithuania to think now that when it needs Russian help in winter, it will not be able to get it because of the sanctions against Lithuanian energy companies. And even if Russian companies want to supply electricity, gas or oil to Lithuania, they will need permission from the Russian government to do so,” says Kondratiev.

However, Russia should be careful about cross-border trade and ties so that citizens of neighboring regions can visit each other, because Lithuania and Poland have already made life difficult for ordinary people.

It is clear that for the whole of Russia the loss of trade with Lithuania is not critical, but for the inhabitants of the Kaliningrad region this can become a problem. Therefore, Russia should try to minimize them.

In the case of China, Lithuania made several attempts to unfreeze contacts. Russia has the same calculation. Of course, one cannot count on the fact that Lithuania will immediately back down and lift the restrictions. However, the chances of this, firstly, will increase. Secondly, a tough response will dampen Lithuania’s ardor to take new sanctions against Russia. Furthermore,

Russia’s weak response in such a situation could provoke the emergence of more people in Eastern Europe who want to impose similar restrictions on Russia, Kondratyev said.

“There is a positive example. In May, Poland imposed sanctions against Gazprom and Novatek without giving any reason. The rather harsh reaction of the Russian government against Polish companies forced Poland to abandon attempts to come up with anticipatory European national sanctions,” the source recalls.

Why might Russian retaliatory sanctions work better with Lithuania than retaliatory sanctions against the entire EU? Because it is the Baltic countries that suffer most from the deterioration of relations with Russia due to the fact that their economies are still largely tied to Russia, and because these are one of the weakest economies in the EU.

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