KaliningradBackgroundLithuania and Poland, both became a part of NATO in 2004. Prior to that, people living in Kaliningrad did not require a visa to travel through both these countries. EU policy, however, will require them to apply for visas once Poland and Lithuania become EU members. The requirement is part of the Schengen Agreement, which provides that open borders inside the European Union are to be offset by stronger controls at the Union’s common external frontier. Russia takes great exception to this requirement and has demanded that a special case be made for citizens of Kaliningrad who may need to travel through Lithuania to reach Russia proper.Kaliningrad was originally a territory of East Prussia, which was divided in two after World War II. The Northern section was annexed by the Soviet Union, and its main city, Koenigsberg, renamed Kaliningrad. The southern section became part of Poland. When the Central European countries won their freedom at the end of the Cold War, Kaliningrad remained part of Russia, although disconnected from the rest of the country. With its strategic position on the Baltic Sea, Moscow hoped to transform the district into a “Russian Hong Kong” by making it a free trade zone. In order to promote trade with its European neighbors, Kaliningrad has applied loose border inspection and controlsKaliningrad’s SEZ was set up in 1996, partly to support the new governor who was handpicked by Putin. It was a high-profile initiative which seems to have been designed to thwart foreign investment rather than attract it. This project gave locals privileges such as tax-free status for the first six years and 50 percent off tax over the next six years along with a decade-long “provisional period”. But it has failed to deliver the results anticipated, especially so in comparison with the neighbouring Klaipeda SEZ in Lithuania and Polish economic progress.In the first two years of the SEZ (Special Economic Zone), there was some illusion of economic growth, which was largely achieved by re-importing European goods to the Russian market, benefitting from huge financial subsidies from Moscow, and crude money laundering practices. Nonetheless, Kaliningrad still remains a leader in “grey zone” economics with 10 percent of its population working in the black market. Moreover, the fact that in 2013 over 50 percent of FDI came from Lithuania, Cyprus, and the Netherlands seems unusual, because these countries are widely considered to be “tax havens”.The CFE Treaty, signed at the end of the Cold War on Nov. 19, 1990, eliminated the Soviet Union’s overwhelming quantitative advantage in conventional weapons in Europe by setting equal limits on the number of tanks, armored combat vehicles, heavy artillery, combat aircraft, and attack helicopters that NATO and the Warsaw Pact could deploy between the Atlantic Ocean and the Ural Mountains.The treaty was designed to prevent either alliance from amassing forces for a blitzkrieg-type offensive, which could have triggered the use of nuclear weapons in response.Russia suspended implementation of the CFE Treaty in 2007, claiming it was responding to NATO member states’ decision to condition their ratification of the 1999 Adapted CFE Treaty on the resolution of a dispute over Russian military deployments in parts of Moldova and Georgia. But Moscow continued to participate in the consultative group, saying that it hoped that dialogue could lead to the creation of an effective, new conventional arms control regime in Europe.Economic situationThe region’s economic situation is influenced by the proceeding economic crisis in Russia and the changing conditions of doing business in the oblast. This is partly due to the termination of tariff concessions on April 1, 2016 which used be a part of the Special Economic Zone established in 1996. The approach to administer Kaliningrad’s economy is also having an influence. Anton Alikhanov began implementing this policy on behalf of the Kremlin, initially as deputy prime minister and acting prime minister of the oblast and then as acting governor.The fall in oil prices which match with the economic sanctions by the west and counter-sanctions by Russia has also had a strong adverse effect on the economy of the Oblast (although the region’s socio-economic indicators match average levels for Russia as a whole). Gross regional product in 2015 fell by 7.6%. All potential growth factors remain non-positive at present. Investments in the area have fallen for the fourth year in a row (by 10% annually), and the residents’ real incomes have been falling since 2015 as well (by 6%). The economic situation is still very tough, especially in the primary sector, the car industry, trade and transport. Attempts to boost Kaliningrad’s economy have so far not been fruitful. According to Alikhanov’s estimates, when the SEZ applied, the state budget ‘lost’ around US$15 billion on customs duty exemptions and indirect taxes, and the oblast turned into a grey trans-shipment zone. Russian government has been trying to change the oblast’s economy from one based on trans-shipment to one on production and exports, above all by liquidating customs privileges granted in 1996.The ambers sector is also perfect for exhausting public funds from the area as its greater part has in fact been functioning in the grey for 20+ years. In 2015, the Kaliningrad Amber Factory located in Yantarny extracted 313 tonnes of amber, and its income from sale reached around US$21 million. The estimated amount of illegal manufacturing in Kaliningrad is currently around 150 tonnes every year. Until 2012, the amber factory was owned by the Russian Ministry of Finance, illegal amber production flourished, and the trade was controlled by organised crime (Viktor Bogdan, who currently resides in Poland, was allegedly one of their main leaders).Social situationThe continuing economic crisis in Russia has affected the social situation in the oblast. The issue has also brought about a degradation of public sentiment shown above all through dissatisfaction with local socio-economic situation and the freefalling evaluations of people’s own economical situation. This is reflected in the results of different surveys (for example, the amount of those not satisfied with the situation in the region increased by 12 percentage between November 2014 and April 2015). Residents of the oblast also declare that they have noticed increased dissatisfaction with the government’s actions among the general populace due to the increase in prices during the crisis. This has not led to any outbreaks.For Kaliningrad, keeping an open border with its neighbours is a factor for reducing social tension. This is a kind of a valve which enables, for example, for the shortages in the region’s resources and supplies to be made up by shopping and medical tourism, mainly to Poland, and development of entrepreneurship based on cross-border co-operation.The Russian government’s anti-Western propaganda appeals less to residents of the oblast than to those of other regions of the Russia. Social surveys reveal that residents have a positive attitude towards their immediate neighbours. On the other hand, Moscow’s fears that overly relations between residents of Kaliningrad Oblast and their neighbours may result in anti-Kremlin sentiments have proven unfounded. The Kremlin’s activity continues to be evaluated very positively in Kaliningrad Oblast The annexation of Crimea met with massive approval (88%). The opinions are even better in those cities where the Baltic Fleet is stationed.Similarly, the Polish government’s decision to suspend small border traffic between Poland and Russia, even though it is viewed as an inconvenience by residents of the oblast, has not provoked any marked emotion because they have relatively easy access to EU member states’ visas, and this allows them to maintain intensive external contacts.Political situationThe contortions in managing funds, the examples being the Baltic Fleet, the stadium construction and the airport development, recently revealed by prosecution authorities are an element of the central government’s broader policy aimed at disciplining the local elites. This is also linked to the political calendar (the parliamentary election in September 2016 and, above all, the presidential election planned for March 2018).The parliamentary and local elections on 18 September 2016 were the first effectiveness test for the new government. Although the government did not achieve a result with respect to that of Russia, it passed the test. United Russia officially garnered 43.4% of the vote (54.2% in the Russian Federation as a whole) and its candidates won in both single member constituencies in the oblast.Numerous cases of manipulation and electoral fraud were seen during the elections (as in other parts of Russia). The election campaign in the oblast was almost unnoticeable, which was proof of the attempt to discourage citizens from political activity. In effect of this, voter turnout was low – officially 44% (compared to 47.9% on the nationwide scale) and was most likely significantly overstated by the government.Military situationThe Russian government’s using the atmosphere of threat allegedly posed by NATO member states to the oblast is used as an excuse for the organisational changes in the Baltic Fleet launched in spring 2016. On 1st April the decision was taken to reform the 11th Army Corps on the base of existing ground units, and supplies of new weapons were promised. The Russian side has so far limited itself to creating the command structures and the staff for the new corps, but no new combat units have been developed. The deployment of new weapons systems has significantly expanded the spectrum of the Russian troops’ attack capabilities and has enabled the creation of a so-called Anti-Access/Area Denial (A2/AD) zone based on Kaliningrad Oblast. If the zone is created, the territories and airspaces of the neighbouring NATO member states and, considering the range of Kalibr missiles, also the entire Central Europe and Scandinavia will be within the range of Russian weapons. One consequence of the increasing militarisation of the oblast is the intensified activity of the secret services and other institutions of force. A special role is played by the structures of the Federal Security Service (FSB) and the Federal Protective Service (FSO) which are in charge of the oblast’s counter-intelligence protection and governmental special communication. Over the past few years the oblast has been playing an increasingly important role as a staging base for carrying out intelligence tasks in Lithuania and Poland. One proof that intelligence activity has intensified is found in the fact that tasks which have the nature of classical political intelligence are carried out by the FSB which, according to the competences act, is only tasked with shallow trans-border intelligence. The fact that proves that such actions are taking place is the indictment brought against the FSB officer Nikolai Filipchenko who was detained in Lithuania on charges of attempting to recruit officers of the Lithuanian services tasked with protecting the premises used by the president of Lithuania. Main issueIn a significant strategic move, the United States has activated the missile defence system in Deveselu, Romania on 12 May 2016. The land-based Aegis ballistic missile defence system is equipped with long-range radar, Aegis BMD weapon system and Standard Missile(SM)-3, which is capable of intercepting incoming missiles and destroying them in the air. The missile defense shield was planned by the then US President George Bush. Later, the European missile defense system was reviewed and implemented by President Barack Obama in 2009. As part of European Phased Adaptive Alternative (EPAA) phase II, work on the Deveselu site in Romania was started in 2013. Construction of phase III site has also started in Poland on day after operationalization of the Romanian site. The Polish site is scheduled to be completed in 2018.The activation of missile defense system in Southeast Europe has further complicated Russia’s relations with Europe and US as well as strategic milieu of European continent. The missile defence system has been perceived by Russia as a threat to its national security. In this context, the Russian Military Doctrine 2014 explicitly notes ‘creation and deployment strategic systems’ of missile defence is major external threat to Russian Federation. The missile defence would undermine not only global stability, but also violates ‘the balance of forces in nuclear-missile sphere.’ Russia views it as a broader strategic programme of the US and it would alter the strategic balance of the region. It has repeatedly objected to military escalation in its ICWA. More recently, Russian Prime Minister Dmitry Medvedev said at the Munich Security Conference 2016 that NATO’s policy towards Russia is “unfriendly and generally obdurate.” He observed that Russia and the West are moving towards a “new cold war”, and Russia being considered as the biggest threat to NATO and its allies. Mechanisms of addressing the mutual concerns have also been discontinued and partnership initiatives are ending one by one.The US and NATO claimed that missile defense system is necessary to protect its allies from ballistic missile threats from ‘outside the Euro-Atlantic space.’ Robert Work, U.S. Deputy Defense Secretary, said, “As long as Iran continues to develop and deploy ballistic missiles, the United States will work with its allies to defend NATO.” Jens Stoltenberg, General Secretary of NATO, argued that missile defence system is a ‘defensive’ measure. In an opinion piece, he noted that many countries are developing ballistic missiles and NATO cannot ignore that threat. Officials from the US and NATO maintained that the defense system is not aimed at Russia. They alluded to the Iranian missile programme. Jens Stoltenberg stated that the objective of NATO is to achieve complete coverage and protection for European Allies against ballistic missile attacks from outside the Euro-Atlantic area. Both NATO and the US argue that SM-3 could not undermine strategic balance of the region because these missiles are not capable of intercepting Russian intercontinental ballistic missiles (ICBMs) do not carry any explosives. Technically, as NATO and US argue, these missiles are designed to eliminate high-velocity targets by hitting them directly. NATO and US also attempted to assure Russia that nuclear-armed attack missiles would not be deployed in Romania.The inauguration of missile defense site in Romania did not surprise Russia. Russia’s Presidential Spokesman, Dmitry Peskov stated that the new development is certainly a threat to its national security.11 Russia argues that it would fuel arm race in the region. Russian President Vladimir Putin said that it is ‘not a defense system.’ He observed that the missile defence is ‘part of U.S. nuclear strategic potential brought onto a periphery. In this case, Eastern Europe is such periphery.’12 Therefore, Russia would continue re-arming its army and navy and spend the approved funds in a way that would “uphold the current strategic balance of forces.”13 Russia ICWA View Point 3 | www.icwa.in criticized US/NATO for using the Iranian missile programme as a pretext to deploy missile defense system in Europe. Iranian missiles do not have the capability to reach any European territory. In addition, Iran has already signed the nuclear agreement with the P5+1 – the US, UK, France, China and Russia plus Germany in July 2015. Therefore, Russia blames the US for escalating the military build-up on its periphery in order to encircle it. It voiced concern over installation of SPY-1 long-range radar in Romania, which can be used for spying on missile tests and aircraft in its airspace. Reportedly, Romanian system could also be re-equipped with offensive cruise missiles.The activation of missile defense system would have multiple geopolitical implications, particularly, for security dynamics in Eastern Europe, Russia-US relations – arms control treaties between them and Syria crisis & fight against Islamic State. Broadly speaking, Russia’s relationship with the US and Europe has been deteriorating in the recent times, embittered by unresolved arms control issues, NATO enlargement, the policies of some Eastern European countries towards Russia, and adverse political trends in the common neighbourhood.15 Strategic dynamics in the Eastern European region has further become tense after the annexation of Crimea by Russia in 2014 and Ukraine crisis. Romania, Poland and Baltic countries have openly voiced their concerns over alleged growing Russian assertion in the region. Poland stresses on enhanced military presence of NATO in the region. It perceives that strengthening of transatlantic security is the only rational response to Russian aggression.16 NATO has gradually been stepping up its security presence in the region. The US has announced plans for a fourfold increase in European Reassurance Initiative funding in 2017.17 It may deploy more troops and armaments in Eastern Europe.18 The additional military presence will increase US’s ability to conduct military exercises.19 In the latest meeting of foreign ministers of NATO countries held on 19 May 2016, it was agreed that the NATO’s role should be increased to ensure stability beyond the alliance’s borders. NATO General Secretary Jens Stoltenberg said that NATO must also train the local forces. NATO is supporting training of Iraqi security officers, developing Special Forces training and national intelligence center in Tunisia, capacity building in Georgia and Moldova. At the foreign ministers meeting, it was also decided to do preparatory work for helping Libyan security institutions.20 European countries are supporting the Government of National Accord (GNA) in Libya and offered support for strengthening Libyan security forces. NATO conducted a military exercise – Anakonda 16 – in Poland from 6 to 17 June, 2016. More than 30000 troops from 24 countries are involved in this exercise. The US provided 14000 troops, the largest military contingent, in the exercise. Poland has mobilized around 12000 troops. It is one of largest military exercises in the post-Cold War era in the Eastern Europe.21 On the other hand, Russia has repetitively accused NATO for pursuing aggressive policy and altering security balance of the post Cold War era. NATO has broken promises by expanding towards Central and Eastern Europe. Russian President Vladimir Putin questioned relevance of NATO eastward expansion after the end of the Cold War. Consequently, Russia has also been enhancing military presence in the region. In the month of April, 2016, the Russian Sukhoi Su-24 Fencers executed close passes near the USS Donald Cook in the Baltic Sea. Russia has developed its military capability in Kaliningrad. Reportedly, it has deployed the S-400 air defense system and Iskander ballistic missiles. Defense experts point out that Russia could also swiftly move its land – based anti-ship missile system into Kaliningrad.22 The Iskander missiles have a range of up to 500 kilometers. Poland would be in range of these missiles. Due to conflict and persisting tension, mechanism of consultation and cooperation between the two sides have waned. Cooperation between Russia and NATO was halted after the crisis in Ukraine. Although Russia and NATO held a meeting in April 2016 almost after two years, they could not iron out their differences. The NATO-Russia Council (NRC) meeting ended without any agreement on reducing the risk of close military encounters between the two sides.Increasing military measures have the potential to affect arms control treaties between Russia and the US. Russia has alleged that missile defense system violates the 1987 IntermediateRange Nuclear Forces (INF) Treaty. On the other hand, the US has also expressed concerns over Russian violation of the same treaty. Russia is in the process of major strategic modernization programme, which involves production of new ICBMs, submarine-launched ballistic missiles and ballistic missile submarines.24 To counter the threats from missile defense, Russia is developing new ICBMs with particular attention to their ability to penetrate the US missile shield. Sergey Karakayev, Russia’s Strategic Missile Force Commander, said that capabilities of Russian ballistic missiles would be increased by reducing ICBM’s acceleration section and introducing new types of warheads with the flight path, which would be not be easy to predict. He also said, ‘Russian missiles are also capable of delivering warheads via energy optimal trajectory and of striking from multiple directions.’Security dynamics of Nordic region seems to be shifting as well. Denmark, Finland, Iceland, Norway, and Sweden have signed a joint declaration to enhance their military cooperation in terms of more joint military exercises, intelligence exchanges and stronger defence industry linkages. The determining factor of their move is an altered security environment in the region. These countries believe that the Ukraine crisis and Russian military activity in the Baltic region have altered security environment.26 The US supports regional defense cooperation of Nordic countries. The joint statement of US-Nordic Leaders’ Summit held in May 2016 states that the US supports deepening of regional cooperation and would help to promote security in the region.27 The US is working to further enhance defense cooperation with the Nordic countries. Finland and Sweden are not members of NATO, but they joined the military exercise in Poland, June 2016. Finland and Sweden pursue a policy of strategic neutrality. They are now inclined to expand cooperation with NATO. Russia shares a 1300 kilometer long border with Finland. Increasing cooperation of Finland and Sweden with NATO may irk Russia.Currently, the political situation in the south eastern part of European neighbourhood – Middle East and North Africa – is fragile. Peace process in Syria appears to be in the nascent stage. Russia and the US are seeking mutual cooperation to resolve the crisis in the Middle East and effectively fight against international terrorism. Although their political initiatives have increased, they are yet to yield effective result on the ground. Tension between NATO and Russia would affect the political situation in the Middle East. Though Russia and US are engaged in consultation, fundamental differences and diverse strategic goals may not easily lead towards a viable political solution.Any violence in the Nagorno-Karabakh, a disputed oblast (province) between Armenia and Azerbaijan, would threaten energy security of NATO allies. Violence suddenly erupted in month of April, 2016. Russia played an active role in calling truce in four days. Historically, mostly Armenian populated region became an autonomous region within Azerbaijan during Soviet Era. Conflict started in end of 1980s. Peace agreement was signed in 1994; however, it remains a ‘frozen conflict’, which has potential to flare up. Crucial pipelines- the Baku-Supsa and Baku-TbilisiCeyhan (BTC) oil pipelines, the South Caucasus Natural Gas Pipeline – cross the South Caucasus region. Disturbance and conflict in the region could affect energy security of some of NATO allies.Economic consequences create differences in the EU over policy towards Russia. Some of the EU member states do not favour the extension of economic sanctions against Russia. They share comprehensive economic linkages and heavily rely on Russian energy supply. Hungary and Greece openly criticized economic sanctions and Italy wanted discussion over extension of sanctions in January 2016. Recently, France’s lower house of parliament has voted in favour of not extending EU sanctions against Russia.