Putin's Military Buildup in the Baltic Stokes Invasion Fears
Comment of the Day

July 07 2016

Commentary by Eoin Treacy

Putin's Military Buildup in the Baltic Stokes Invasion Fears

This article by Henry Mayer may be of interest to subscribers. Here is a section: 

“NATO could not have militarily prevented a determined Soviet effort to overrun West Berlin, nor can it militarily prevent a determined Russian effort to overrun the Baltic states. But if the Soviets had overrun West Berlin, that would have meant war with NATO,” said Thomas Graham, a senior White House aide at the time the three countries joined the alliance more than a decade ago. “In theory, the same thing should hold true if the Russians made an effort to overrun any Baltic state.”

To help dispel doubts about its commitment, NATO this week will approve plans to deploy four battalions to rotate through the region. But though bigger than what the military bloc has ever placed there before, the units will still be dwarfed by Russia’s forces on the other side of the border.

The Kremlin, which is spending 20 trillion rubles (about $313 billion) on an ambitious defense upgrade through 2020, argues that it’s just responding to NATO’s encroachment toward Russian borders. In May, Russia announced plans to put two new divisions in the Western region and another in the south. That could be about 30,000 troops, compared to 4,000 in NATO’s plan.

Eoin Treacy's view

There is a Chinese proverb to the effect that when the snipe and the clam fight the fisherman wins. With the UK’s decision to leave the EU, Western European political elites are scrambling to put together a response. At the very minimum it says to the rest of the world that the EU is vulnerable due to a lack of internal cohesion suggesting outside parties have an advantage. As a military strategist Putin may well view this is as an opportunity. 

Russia is burning through cash with news yesterday that it expects to exhaust one of its two sovereign wealth funds by 2017 and about a third of the other in order to cover budget shortfalls. With oil prices looking increasingly susceptible to rolling over, (today’s decline in Brent Crude has now broken the progression of higher reaction lows and represents the largest pullback since January) Russia’s coffers are increasingly susceptible to further contraction. Military build-ups like the one Russia is currently engaged in are not cheap so the country is heavily dependent on energy prices to fund its deficit spending. 

Despite the fact Germany is worried about aggravating Russia with NATO’s comparatively paltry troop movements, perhaps the greatest deterrent to Russian aggression in the Baltics is Syria. No country, particularly one with major budget issues, wants to fight a war on two fronts and against different opponents. 

The Russian Traded Index trended lower for five years from the 2011 peak and has staged an impressive bounce in line with oil prices. It continues to consolidative above the trend mean but the short-term range will need to be resolved to the upside if medium-term demand dominance is to be reasserted and today’s pullback in oil prices is likely to weigh on it tomorrow.  

Meanwhile the Baltic Tiger markets of Estonia, Lithuania and Latvia which are all Euro denominated are among the bloc’s best performing stock markets. 

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