Could Latvia Be The Next Crimea?

BMI View: Russia is unlikely to have the means to destabilise Latvia through its ethnic Russian population as it did in Ukraine. Nevertheless, Riga will view Moscow warily, and raise defence spending accordingly over the coming years.

Following the outbreak of the Ukrainian crisis and Russia's subsequent annexation of Crimea, NATO members in Eastern Europe including Latvia are becoming increasingly concerned about the potential for a military operation by Russia to occur within their borders. A direct military invasion of Latvia (and other Baltic states) remains extremely unlikely, as Latvia's NATO membership would force the alliance's member states to respond to any acts of aggression under Article 5 of the treaty, that treats an attack on one member state as an attack on all. Nevertheless, the ongoing destabilisation of Ukraine by well-armed and well-organised separatist groups suggests that Russia is at the very least offering auxiliary, if not direct, support to such groups.

The Latvian government has become concerned that Russia may attempt to mount a similarly destabilising covert operation within its own borders. Russians are the largest ethnic minority within Latvia, standing at 26.9% of the total population in 2011, and Latvia possesses a strong Russian media presence, which could help to foment unrest within Latvia's borders. Latvia's defense minister Raimonds Vejonis announced in April that he believed Russia was trying to use specially-trained professional provocateurs to stir up unrest in Latvia, despite his belief that the direct military threat to Latvia and the Baltic region was quite limited. Latvian MEP Tatjana Zdanoka was placed under investigation in April by security authorities, accused of being an agent of influence for Russia.

Economic Appeal Far Lower For Ethnic Russian Latvians
GDP Per Capita, USD

BMI View: Russia is unlikely to have the means to destabilise Latvia through its ethnic Russian population as it did in Ukraine. Nevertheless, Riga will view Moscow warily, and raise defence spending accordingly over the coming years.

Following the outbreak of the Ukrainian crisis and Russia's subsequent annexation of Crimea, NATO members in Eastern Europe including Latvia are becoming increasingly concerned about the potential for a military operation by Russia to occur within their borders. A direct military invasion of Latvia (and other Baltic states) remains extremely unlikely, as Latvia's NATO membership would force the alliance's member states to respond to any acts of aggression under Article 5 of the treaty, that treats an attack on one member state as an attack on all. Nevertheless, the ongoing destabilisation of Ukraine by well-armed and well-organised separatist groups suggests that Russia is at the very least offering auxiliary, if not direct, support to such groups.

The Latvian government has become concerned that Russia may attempt to mount a similarly destabilising covert operation within its own borders. Russians are the largest ethnic minority within Latvia, standing at 26.9% of the total population in 2011, and Latvia possesses a strong Russian media presence, which could help to foment unrest within Latvia's borders. Latvia's defense minister Raimonds Vejonis announced in April that he believed Russia was trying to use specially-trained professional provocateurs to stir up unrest in Latvia, despite his belief that the direct military threat to Latvia and the Baltic region was quite limited. Latvian MEP Tatjana Zdanoka was placed under investigation in April by security authorities, accused of being an agent of influence for Russia.

NATO Troop Arrivals Largely Symbolic So Far

The growing perceived threat from Russia has caused sufficient alarm for Latvia to request the establishment of permanent NATO bases within their borders. However, Russia would likely object to such a development on the basis that it would be at odds with the West's 1997 understanding with Moscow limiting NATO bases ("substantial combat forces") on Russia's periphery. While NATO has suggested it intends to honour that pledge for the time being, it has declared it is not legally bound by the agreement and would be within its rights to install permanent bases in the Baltic states in light of recent developments in Ukraine and Crimea.

Five NATO minesweeper ships arrived in the Baltic region in May to bolster defences, in addition to roughly 600 troops sent to the surrounding region from April onwards. Meanwhile Latvia's new government, led by Laimdota Straujuma, has pledged to increase defense spending to 2.0% of GDP by 2020, from current levels of around 0.9%. However, an increase in defense expenditure is not yet planned for 2014 unless the geopolitical situation shows signs of deteriorating rapidly.

While NATO has increased its presence in the Baltic region in response to events in Ukraine, the deployments are relatively small in number, and are more likely intended to send a clear signal to Russia. However, the economies of the Baltic states are quite small and it remains unclear who would pay for a substantial expansion of NATO's presence in the region. Post-financial crisis, many NATO members have also made substantial cutbacks to their military spending, with only several meeting their 2.0% of GDP spending target in 2013. The overall spending among NATO members was just 1.6% of GDP. Furthermore, there had been no military contingency plan to defend Latvia and the other Baltic states until Russia invaded Georgia in 2009.

How Realistic Is A Crimea-Style Scenario In Latvia?

As we noted above, Latvia and Ukraine share some similarities in terms of both sharing a high and roughly similar concentration of ethnic Russian speakers (Latvia actually has a slightly higher concentration than Ukraine, although its overall population is around twenty times smaller). As with Ukraine, Latvia also has a significant Russian-language media presence (although as of April, Latvia has implemented a three-month ban of all programmes on Russian TV channel Rossiya RTR).

Nonetheless, in addition to NATO membership (which is a major deterrent in itself against Russia), there are several reasons that reduce the probability of a Crimea-style scenario taking place in Latvia. First, while the proportion of ethnic Russians in both countries is some comparable, ethnic Russians in Latvia are not as regionally concentrated as they are in Ukraine, where ethnic Russians comprise up to 40% of the population in some eastern regions (and greater than 55% in Crimea). Ethnic Russians in Latvia instead tend to be concentrated in urban areas (such as Riga) while rural areas remain dominated by ethnic Latvians (with the exception of some small areas in eastern Latvia).

Economic Appeal Far Lower For Ethnic Russian Latvians
GDP Per Capita, USD

Second, the quality of life in Latvia is substantially higher than that of Ukraine. GDP per capita in Latvia is around USD14000 - roughly equivalent to that of Russia's - and much greater than USD4000 per capita in Ukraine. The economic argument for joining Russia therefore seems considerably weaker for most ethnic Russians living in Latvia. This is particularly true given that trade ties between the two countries are also less significant than between Ukraine and Russia, where Russia accounts for around 30% of total exports, versus around 10% for Latvia.

Finally, Ukraine was - and remains - on the brink of economic collapse, which has severely hampered the interim government's ability to neutralise separatist activities, with police and security forces across the country poorly-paid and frequently demoralised. This is not the case in Latvia. On balance, therefore, we think that even if Latvia faces similar attempts to destabilise it by Russia, these efforts are unlikely to be as effective as they were in Ukraine. Nonetheless, concerns in the Latvian government over the threat from Russia are not likely to abate any time soon, and we expect that defence spending is likely to rise in subsequent budgets.

Risks To Outlook

The key risk to our outlook is that the Latvian government implements tough measures against ethnic Russians, thereby creating a popular backlash, and unrest. Even so, Russia would be reluctant to intervene through destabilisation efforts, given the risks of much tougher Western sanctions.

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Sector: Country Risk
Geography: Latvia
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