In a move to further expand Russia’s market into the world system, Moscow commissioned a port to be constructed on the Baltic Sea, thus creating a route in which oil from the Urals could be traded more easily in the European market.

Concerns over expected future production levels — Russia’s current volume has been deemed unsustainable when compared to overall project cost — have been leveled against Moscow. Shifting the route further north and away from the Ukraine and Belarus will afford Russia the opportunity to manage price controls and ensure the product’s secure transportation routes are not undermined by political disagreements.

Analysis

Russia’s paranoia about the security of its oil routes is expected as the region has been continually undermined by political turmoil (particularly with Ukraine and Belarus) and violent nonstate actors.

With Europe, Russia’s primary import market, in the midst of an economic crisis and Russian banks suffering a liquidity crisis, the country needed to establish an outlet which it felt it not only controlled but also would expand the country’s export market.

In bypassing the Baltic states, Moscow has the ability to feel as if it is in control of its primary source of capital; a region historically fraught with complaints of fraud and extortion, particularly in the commodities markets.

The decision to move shipping routes may have solved an economic issue in Russia but could possibly open a political nightmare for Moscow. With Europe in transition and the future of NATO under discussion, particularly expanding into the Baltic region, Russia is further alienating itself from potential confidants who may receive NATO with more open arms.

Wikistrat Bottom Lines

Opportunities

• Security and stability of transports will be strengthened as Moscow will have more control. Expanding availability will also afford Russia the capital it needs to stabilize the nation’s struggling financial sectors.

Risks

• Rather than diversifying its economic strengths, the economic crisis in Europe and liquidity issues have led Moscow to reinvest heavily in a commodities market that can be easily undermined by regional or international events.
• Bypassing Ukraine and Belarus has the potential of exacerbating regional issues and move the Baltic further into the NATO camp.
• Expanding availability will fail to provide the Russian domestic market the jobs and liquidity for which it is searching, as only one sector of the market will be successful — a sector whose directors are well known for widespread malfeasance.

Dependencies

• Europe’s recovery from its current crisis could determine its relations with Russia which, in turn, could affect this new route.

Patrick Hall and Graham O’Brien contributed to this analysis.