The Baltic Sea: Energy Basin at the Mercy of Geopolitics

The Baltic Sea has long been at the center of European energy trade.

With NordStream 2 and the steady economic growth in Eastern Europe, the Baltic Sea is rising to a key role in global energy trade.

1. The Baltic Sea: A Petry dish where many interests converge 

The Baltic Sea is a small but fine sea, but that does not mean that it is without importance. In fact, we find a variety of reasons why the sea between the Skagerrak and St. Petersburg Oblast plays an important role in shaping geopolitical events.

Throughout history, the Baltic Sea has reflected the sufferings of empires and brought down fantasies of grandeur. 

Likewise, the Baltic Sea was the core of the Hanseatic League, which shaped the destiny of the cities and trading ports on its shores. The Baltic Sea has been steeped in history, has seen the rise and fall of empires, of the entirety of the expanse of the sea. 

The Baltic Sea in particular seems to be returning to its old status. The Baltic Sea has so many cities around it. There are so many decentralized hubs connected to it like pearls strung along the highway of the north. NordStream 2 has given this a powerful push into a new dimension. At least that’s how it seems.

NordStream is intended to supply Western and Central Europe with the energy that we need to remain a viable production center in a globalized world in which China plays a much more important role. For many in Europe, the NordStream pipeline is a project designed to create prosperity. For Germany specifically, it is all about providing enough energy for its industry to function. Last December, Germany had massive difficulties feeding enough wind and solar energy into its grid to keep the grid stable. Without electricity imports from abroad, especially from France, grid stability could be more difficult to maintain in the long term. The Baltic Sea serves as a gateway to the energy markets in Northern and Eastern Europe as well as Russia. 

While there is consensus that NordStream will provide the gas needed to fill Germany’s and other countries’ energy gaps, it could bypass existing pipelines that run through Central Europe and currently provide revenue to transit countries. This must be taken into consideration. Some countries in Eastern Europe are building LNG terminals to increase their energy security. This may lead to an oversupply of cheap natural gas, or it may lead to lower prices. It can also lead to higher prices if pricing requires natural gas supplies to be purchased for only a certain period of time. Spot prices (arrival-based) are often significantly more expensive. This can become a problem when cheaper options such as pipeline gas are available just a few miles away.

2. The Hanseatic League as a precursor of today’s energy dilemma

This is indeed an age-old dilemma that the Baltic city-states of the Hanseatic League faced centuries ago. Their wealth depended on trade with the outside world, and fortunately the Baltic Sea served as a medium on which goods could be exchanged. Trade crisscrossed the Baltic Sea and goods flowed in and out of Hanseatic ports. The network effect meant that the cities involved in this network benefited disproportionately from economies of scale. 

The sea was the perfect medium for trade, like a game board for the city-states. Unlike the North Atlantic, the North Sea and even the Mediterranean, the Baltic Sea is relatively calm and not too affected by ebb and flow cycles. This was a great advantage that facilitated trade across the entire area. The Baltic Sea is also relatively safe from the vagaries that characterize other major nodes in the global energy system. The Strait of Malacca is much more vulnerable to energy trade disruptions than the Baltic Sea will ever be. Although it must be said that the Strait of Malacca is of much greater importance globally.

With the rise of Central and Eastern Europe, this small sea is now surrounded by a dense collection of safe, stable cities with high per capita incomes. As economic power increases, there is more competition for this prosperous space on the world map. The Baltic Sea is surrounded by prosperous maritime centers such as Copenhagen, Stockholm, Gdansk, Helsinki and St. Petersburg. This means that energy demand is very high and Russia is in a good position to provide these energy resources

The very fact that Russia can supply these energy resources to countries close to the St. Petersburg oblast and Kaliningrad region brings it into conflict with other geopolitical actors. Those actors who have a strong interest in the Arctic and Northern and Eastern Europe.

Many thanks for the shared interest in the energy world!

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