Baltic States Expand Focus Amid Geopolitical Shifts

Since joining the European Union (EU) in 2004, the Baltic countries of Estonia, Latvia and Lithuania have benefitted from strong economic and security ties within Europe. As a result of their "bandwagoning" strategy – where smaller states align themselves with larger powers for protection and benefit – the Baltic countries have had little motive to engage with geographically distant regions like the Middle East.[1][2]

However, the situation has changed since the Russia-Ukraine war began in 2022. The conflict has heightened geopolitical tensions and disrupted energy supplies, underscoring the need for diversified partnerships. The EU and the North Atlantic Treaty Organisation (NATO), including the three Baltic states, are increasingly concerned about the potential consequences of a Russian victory. They fear that it could embolden the President Vladimir Putin to test the strength and unity of the Western alliance by directly challenging NATO members.[3]

Consequently, the Baltics have sought to develop new ties with partners outside their immediate neighbourhood to enhance their security. The Baltics’ emerging partnerships with the Gulf Cooperation Council (GCC) countries are rich in oil, gas, and investment potential and could prove highly valuable in world shifting towards regionalisation. 

 

Baltic States Eye Gulf

While the Baltics established formal diplomatic relations with the GCC on a bilateral basis in 1991, after regaining independence from the Soviet Union, high-level visits and trade missions have been infrequent.[4] To unlock the full potential of Baltic-Gulf relations in areas like trade diversification and energy partnerships, it is essential to prioritise formalised engagement. Stronger diplomatic and economic ties are key.

Relations are primarily based on bilateral engagement, often taking place on the periphery of the broader EU-GCC partnership and related events. Ties are expected to continue deepening at the bilateral level – especially given the Baltics’ focus on energy security and shared economic interests. However, with trade between the two regions growing at pace, the GCC could benefit from engaging with the Baltics as a cohesive bloc. This approach aligns with the GCC strategy of expanding economic ties with emerging markets to diversify investments and trade portfolios, and accelerate its economic diversification goals.

 

Energy Diplomacy in Crisis

To counter energy instability, the Baltic countries have moved swiftly to reduce imports from Russia and diversify suppliers. [5] Lithuania, for instance, has turned to Saudi Aramco for refined fuels. In November 2022, Polish oil and gas company ORLEN, owner of Lithuania's Orlen Lietuva refinery, entered into a strategic partnership with the Saudi oil major to supply 45% of ORLEN’s crude oil requirement – previously supplied by Russia.[6]

Liquefied petroleum gas (LPG) offers another potential avenue for cooperation. EU countries, including the Baltic states, are seeking alternative suppliers due to impending EU sanctions on Russia, set to take effect by the end of this year.[7] For Saudi Arabia, the world’s largest LPG producer, projected to produce 5.85 million tonnes by 2030, this presents an opportunity to leverage LPG as a strategic asset.[8]

In the long term, there is a lot of potential for cooperation between the Baltics and Qatar in LNG. For the Baltic countries, LNG is a key component of its plans to ensure a stable and diverse energy mix while supporting long-term energy independence. Lithuania, for example, has developed infrastructure like the Klaipeda terminal to meet domestic natural gas demand and enable shipments to European markets.[9] For Doha, such collaboration underscores its expertise in energy diplomacy and firms up its position as a leading supplier to Europe – an important step towards its goal of becoming a globally strategic energy partner on par with the US and Australia. 

Although the Baltics and Qatar have only concluded one deal so far – energy firm Latvenergo’s purchase of the equivalent of two terawatt-hours of Qatari LNG in 2022, imported via the Klaipeda facility – furthering cooperation in this area could offer mutual benefits.[10]

 

Economic Cooperation Beyond Energy

Trade relations between the Baltics and the GCC have evolved post the pandemic. Overall trade volumes have increased. Notably, the trade volume between Lithuania and the Gulf region reached a record $2.696 billion in 2022, primarily due to energy imports from Saudi Arabia.[11] The two regions have also seen an increase in non-energy trade, primarily exports of electrical and electronic equipment, furniture, machinery, nuclear reactors, boilers, and wood to the Gulf. The GCC has accelerated economic diversification plans post 2020, investing in non-oil sectors such as manufacturing, technology, logistics, among others; hence demand for these commodities, among others, is high.

The Baltic countries align well with the GCC’s diversification agendas.[12] A closer look at bilateral relationships reveals growing interest in – and potential for – collaborating in strategic sectors that fit with the GCC’s Vision 2030 goals. 

Lithuania: Tourism and fintech

In 2023 Ministers from Oman and Lithuania met in Muscat to explore cooperation in tourism, as well as renewable energy, agriculture, and port logistics. The visit resulted in a Memorandum of Understanding to explore further cooperation in the tourism field and the feasibility of setting up direct flights between the two countries.[13]

Fintech presents another opportunity. The Baltic nation has a burgeoning fintech sector and can offer valuable expertise that could help drive innovation in the Gulf’s financial technology ecosystem. 

Estonia: Technology

Estonia is well-positioned to contribute expertise in green and smart technologies and digital transformation. In September, at the 2024 ITS World Congress in Dubai, Trade Estonia showcased its innovations in Intelligent Transportation Systems (ITS) and smart mobility.[14] This is win-win opportunity to leverage: the GCC gains access to ITS innovations, while Estonia as a leading player expands its footprint in a fast-growing market.

Estonia and the GCC could expand cooperation further in areas such as transport, statistical data sharing, science, cybersecurity, and tourism. 

Latvia: Logistics

Latvia, while trailing its neighbours in terms of trade volume with the GCC ($143.98 million in 2023) signed an agreement with Saudi Arabia in June 2023 to form a joint economic committee, focusing on key sectors such as tourism, food, finance, logistics, and technology.[15] Latvia also signed in 2022 a comprehensive six-track economic cooperation programme with the United Arab Emirates (UAE). 

Latvia’s distinct advantage among the Baltic states lies in its well-established expertise in logistics and transport infrastructure, thanks to its strategic position bridging central and northern Europe.[16] As the GCC plans to develop a railway system connecting all six member states, Latvia could offer a wealth of expertise from its experience managing cross-border infrastructure projects like the Rail Baltica, a crucial link between Tallinn and Warsaw. Additionally, Latvia’s advanced port facilities, road networks, and maritime infrastructure offer more opportunities for economic collaboration.

 

The Path Forward: Towards Broader Collaboration

There is further scope for Baltics-GCC commercial partnerships and joint research and development (R&D) initiatives, particularly in scaling up renewable and hydrogen production. Engaging in R&D collaboration with the Gulf could provide essential resources for Baltic green technology startups and policy makers to tackle environmental challenges within a region committed to adopting renewable energy solutions.[17]

The clean energy transition, as well as water management and desalination technologies, are key areas of focus of decision-makers in the Gulf and the Baltic countries. In addition, Baltic investors with strong environmental, social, and governance (ESG) criteria may find promising investment opportunities in the GCC’s green finance markets, where the Gulf countries are developing solid foundations for green investment.[18]

Establishing a structured dialogue framework between the GCC countries and the Baltic states can strengthen political ties, open new avenues for cooperation in areas of mutual interest, strengthen business partnerships and create investment-friendly policies. 

In March 2024, Qatar and Estonia signed an agreement to clarify tax relations, eliminate double taxation, and prevent tax evasion between the two countries. Similar agreements with other GCC countries could stimulate more investment and trade. The EU is creating an EU Customs data hub to make it easier for businesses to import or export goods. The GCC could implement a similar system with the Baltics to improve operational efficiency. 

With robust trade figures and shared interests, cooperation between the Baltics and the GCC will yield mutual benefits for both regions and foster lasting partnerships.

 

Sources:

[1] Levick, Laura, and Carsten-Andreas Schulz. 2020. “Soft Balancing, Binding or Bandwagoning? Understanding Institutional Responses to Power Disparities in the Americas.” Canadian Journal of Political Science (2020): 1–19. https://doi.org/10.1017/s0008423920000220.

[2] Galeeva, Diana. “Unusual Allies: What Factors Drive the GCC-Baltic Relations?” 2023. MIR. 27 September 2023. https://www.interregional.com/article/Unusual-Allies:/1909/En.

[3] Trofimov, Yaroslav. “As Ukraine Loses Ground, Baltic Countries Ask: Are We Next?” Wall Street Journal, 22 May 2024. https://www.wsj.com/world/narva-estonia-russia-destabilization-e6bcedef.

[4] Galeeva, Diana. “Unusual Allies: What Factors Drive the GCC-Baltic Relations?”

[5] Howey, William. 2023. “Baltic States Ramp up Investment in Energy Sector.” Economist Intelligence Unit. 26 May 2023. https://www.eiu.com/n/baltic-states-ramp-up-investment-in-energy-sector/.

[6] “Aramco Completes Three Transactions with PKN ORLEN in Poland.” 2022. Aramco. 30 November 2022. https://www.aramco.com/en/news-media/news/2022/aramco-completes-three-transactions-with-pkn-orlen-in-poland; and “Orlen Lithuania Plans to Refine Saudi Oil Only”, The Baltic Times. 25 March 2022.

[7] “LTV’s de Facto Looks at Latvia’s Petroleum Gas Imports from Russia.” Public Broadcasting of Latvia. 22 January 2024. https://eng.lsm.lv/article/economy/economy/22.01.2024-ltvs-de-facto-looks-at-latvias-petroleum-gas-imports-from-russia.a539812/.

[8] “Saudi Arabia LPG Market Size, Share & Industry Analysis Report 2030.” Chemanalyst. 2020. https://www.chemanalyst.com/industry-report/saudi-arabia-lpg-market-250.

[9] Paszkowski, Michał. 2024. “Natural Gas Demand Decline in the Baltic Countries in 2023.” Institute of Central Europe. 6 March 2024. https://ies.lublin.pl/en/comments/natural-gas-demand-decline-in-the-baltic-countries-in-2023/; Staff, LNG Prime. “Latvia to Get Regasified LNG via Lithuania’s Klaipeda Terminal.” LNG Prime. 7 March 2022. https://lngprime.com/lng-terminals/latvia-to-get-regasified-lng-via-lithuanias-klaipeda-terminal/44876/.

[10] Staff, LNG Prime. “Latvia to Get Regasified LNG via Lithuania’s Klaipeda Terminal.”

[11] “Lithuania Imports from Saudi Arabia - 2024 Data 2025 Forecast 1995-2023 Historical.” Tradingeconomics. 2024. https://tradingeconomics.com/lithuania/imports/saudi-arabia.

[12] Galeeva, Diana. “Unusual Allies: What Factors Drive the GCC-Baltic Relations?”

[13] Times News Service. “Oman, Lithuania to explore more trade, tourism opportunities” Times of Oman. 10 October 2024. https://timesofoman.com/article/137099-oman-lithuania-to-explore-more-trade-tourism-opportunities.

[14] “Estonia Elevates Intelligent Transport Systems at ITS World Congress 2024.” 2024. Zawya. 16 September 2024. https://www.zawya.com/en/press-release/events-and-conferences/estonia-elevates-intelligent-transport-systems-at-its-world-congress-2024-u4g2cdko.

[15] Mosly, Amnah. 2024. “GCC-Latvia Relations”. Gulf Research Centre. https://www.grc.net/documents/65e9b16bba3a6GCCLatviaRelations2.pdf.

[16] “Transit and Logistics.” 2022. LIAA. 28 January 2022. https://www.liaa.gov.lv/en/trade/industries/transit-and-logistics?utm_source=https%3A%2F%2Fwww.google.com.eg%2F.

[17] “Latvian Startup Report 2023.” 2023. Startin.lv. https://startin.lv/wp-content/uploads/2024/02/Latvian_Startup_Report_2023.pdf.

[18] Obeid, Jessica. 2024. “Turning MENA Markets Green: Why Sustainable Finance Matters and How to Do It.” SRMG Think. 2024. https://www.srmgthink.com/sites/default/files/2024-10/GreenMena_Report_OCT3-compressed.pdf.