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As Prime Ministers of Estonia, Latvia and Lithuania issue a statement condemning Russia’s “unprovoked” aggression in Ukraine and calling for Ukraine’s entry to the European Union, Lithuania’s finance minister says further sanctions are needed.
In a joint statement released on April 22, the three Baltic leaders called for an immediate end to Russian hostilities in Ukraine, alongside the withdrawal of all Russian troops from Ukrainian territory.
“We will continue to provide political, financial, humanitarian and military assistance to Ukraine. We urge our allies and partners to do the same,” they said.
“Ukraine is at the forefront, fighting for the whole of Europe and our common values. The future of Ukraine lies in the European Union. We recognise a clear European perspective for Ukraine in order to be granted EU candidate status.”
Elsewhere in the statement, Kaja Kallas of Estonia, Krišjānis Kariņš of Latvia and Ingrida Šimonytė of Lithuania expressed their commitment to strengthening European security via the “complementary actions” of NATO and the EU, including by increasing their defence budgets to at least 2.5 percent of GDP.
“In order to prevent aggression in any form, it is necessary to ensure a modern frontline position in the Baltic states,” they said. “This will require larger land, air and naval forces deployed here.
“The continued presence of allied forces in the Baltic states should be based around three combat-ready divisions, one for each of the Baltic states entrusted with collective defence operations and capable of integrating local national defence forces.”
The three Prime Ministers also said they are working together to protect against “unconventional” and “hybrid” threats posed by Russia, including cyber attacks, disinformation campaigns, external interference, intelligence operations, legal warfare and economic pressure.
“Our enemies are resorting to these tactics in an attempt to divide our societies and undermine our resolve,” they added.
West ‘must’ do more
On the same day as the joint statement, Gintarė Skaistė, Lithuania's minister of finance, was in Washington, DC meeting with officials from the US Treasury.
In a meeting with Wally Adeyemo, undersecretary of the US Treasury, Skaistė said the West must do more to coordinate tougher international sanctions against Russia and Belarus.
“Sanctions against Russia and Belarus need to be further expanded and strengthened, and coordination with our strategic partner, the United States, needs to be strengthened," said Skaistė.
"We must not only expel Russia and Belarus from international financial institutions, but also cut off the Russian regime from major financial flows — stop buying Russian gas and oil, ensuring that the West no longer finances the war against Ukraine and its people.”
Skaistė also said that Western partners should come to an agreement on large-scale financial and humanitarian assistance to Ukraine, responding to the country's short- and long-term reconstruction needs.
Funding both sides of the war
As Skaistė pointed out, the EU is effectively funding both sides of the war in Ukraine. And worse still, since the start of the invasion, the vast majority of that funding has gone to Russia, not to Ukraine.
This month, a joint study by two European think tanks found that, in the first month of the war, the EU spent four times more on Russian energy imports than on aid to Ukraine.
Between February 27 and March 27, EU aid to Ukraine amounted to more than €5bn, whereas EU imports of Russian oil, gas and coal combined amounted to more than €20bn.
The study confirms what was already revealed earlier this month by Josep Borrell, the EU’s top diplomat, who said that despite ongoing sanctions, the EU is buying roughly $1bn worth of energy from Russia every day.
As VIXIO has reported previously, in March this year regulatory events affecting the payments industry hit a record single-month high, driven by Western sanctions on Russia. But the EU has not yet moved to sanction imports of Russian oil and gas.
In its fifth round of sanctions, adopted on April 8, the EU moved to prohibit the import of Russian coal by August 2022. But by the EU’s own admission, EU imports of coal from Russia are only worth about €4bn annually.
On Monday (April 25), Borrell said in an interview with Die Welt that the EU currently lacks a “unified position” on sanctioning Russian oil and gas, but both options are under discussion for the EU’s sixth round of sanctions.
Current accounts surplus and gas pipe diplomacy
Against this backdrop, it is no surprise that by the end of Q1 2022, Russia had accumulated a current account surplus of $58bn — its largest in three decades and more than double that of Q1 2021.
During Q1 this year, Russia’s revenues from oil and gas exports surged, while its import costs plunged on the back of sweeping sanctions.
Still, it remains true that much of Russia’s foreign exchange (FX) holdings are now trapped as a result of the lockout of Russian banks from SWIFT and to the freezing of Russia’s central bank reserves.
For Russia, one solution to this conundrum is to have European countries pay for oil and gas imports using roubles.
In March, President Vladimir Putin said that Russia would start requiring "unfriendly" countries to pay for gas by opening accounts at Gazprombank and making payments in euros or dollars, which can then be converted into roubles.
Last week, the European Commission said it "appears possible" that EU companies could submit to this demand without breaching sanctions, but Putin is already starting to turn the screws on his European counterparts in search of roubles payments.
On Tuesday (April 27), in a first since the war began, Gazprom said it will cut off gas supplies to Poland and Bulgaria from today (April 28) unless they comply with Putin’s proposed payments solution.
