Russian President Vladimir Putin's decision to recognize the independence of Ukraine's breakaway republics of Donetsk and Luhansk has provoked a strong reaction from Western countries. This time it is harsher than it was after Russia's annexation of Crimea. Sanctions have been imposed on a number of Russian politicians, businessmen and officials. There are also sanctions against two Russian state banks, and so on.
It is clear that Latvia, too, will not be able to escape the consequences of this conflict: in the propaganda rhetoric of the neighboring country, Poland and the Baltic States are major Russia-haters. Relations with Russia have not been all nice even before this, but cooperation and trade with Russia have persisted in many areas. But now it looks as if there will be a period of even colder relations.
German Chancellor Olaf Scholz has announced that he is suspending the certification process for the Nord Stream 2 gas pipeline. The suspension of the certification process does not mean that the gas project is done for and that the pipes laid on the seabed will never deliver Russian gas to Germany. But the situation is serious. Until now, there has been no talk of Germany pulling the plug on Nord Stream 2. The previous Chancellor, Angela Merkel, did not even seem to entertain such a possibility.
Here, too, Latvia's ruling politicians should think seriously. How will they live if the gas tap from Russia is turned off? What will be the future of the Inčukalns underground gas storage facility? There is hardly any reason for optimistic illusions that Russia's policy towards Ukraine could suddenly change and become friendly. So cooperation between Latvia and Russia will be disrupted. We should think that there are enough gas reserves at the moment and for the time being, but the question is what will happen next autumn and winter, what will the price of gas be?
The escalation of relations with Russia affects a wide range of areas, including sport. The support club of the Helsinki hockey club Jokerit is demanding that the Finnish team leave the Kontinental Hockey League. The team's management is still trying to say that it has a contract and commitments with the KHL, but it is unlikely that the Finnish club will stay in the KHL. Dinamo Riga will seemingly have to do the same. The Minister of Education and Science Anita Muižniece (JKP) is already urging this.
Nothing terrible will happen to Finnish hockey if Jokerit does not play in the KHL, but it will be a blow for Latvia - the participation of Dinamo Riga in the KHL has contributed to keeping Latvian hockey at a high enough level. The Riga needed KHL more than the other way around.
The cooling of relations with Russia will affect many areas and sectors - transit and transport, trade and culture. In 2021, Russia was Latvia's 5th largest export partner. Last year, Latvia exported €1.2 billion worth of goods to Russia, while imports from Russia amounted to €1.8 billion. Latvia exported food products, electrical equipment and chemical products to Russia, while Latvia bought mineral products and metal products from Russia. The introduction of sanctions is expected to make it more difficult to make all types of transactions with Russia, and therefore to reduce the overall volume of exports and imports.
Even before Putin's speech on Monday evening, energy prices were already rising sharply. Instability in the region means that inflation will now get an extra push.
Although Vladimir Putin has said that he will continue to supply gas to world markets, this does not mean that energy prices will not rise. They may rise even more than they have already.
The government of Krišjānis Kariņš (JV) faces difficult times ahead, with many economic and financial problems. But the government continues to focus on Covid and vaccination - the ruinous restrictions and the Covid certificate system still have not been lifted. The Latvian economy should now be strengthening, recovering, but the opposite is happening - it is weakening. The government and the ruling coalition, following the lead of the New Conservative Party (Jaunā konservatīvā partija, JKP), are accepting pointless reforms, taking away the administration of the freeports of Riga and Ventspils from the municipalities, introducing councils in universities, which they need like a hare needs a fifth leg. At the moment, another project detrimental to Latvia's competitiveness and education is being pushed forward at break-neck speed by the JKP, which envisages the incorporation of the Maritime Academy into the Riga Technical University, i.e. its effective liquidation. These are empty ritual actions that either have no meaning or are intended for selfish, petty needs, for the ecstasy of satisfaction in one's own power.
It is high time for the Krišjānis Kariņš government to pull its head out of the sand and face the stark reality. It is clear that Russia will respond to sanctions with counter-sanctions and that it will retaliate to every slap it is dealt. Russia can do little harm to Finland, Germany or America, but it can cause a great deal of pain to Latvia's weak, Covid-tormented economy.