With the recent addition of new sanctions against Russia, some may advocate for continuing to isolate Russia from the world economy. Specifically, responding to Russian aggression in the East by forcibly eliminating Russian trade from the Baltic region. Doing so is a terrible idea.
Cutting off Russia from trade with the Baltics and Finland would decrease Russia’s exports, and GDP if unsubstituted, by approximately $12.7 billion. The Baltics and Finland, assuming Russian reciprocity, would lose $8 billion in exports, and require aid of a comparable amount (See Table 1) to mitigate the adverse effects of lost trade. In 2015, Russian trade generated 49% of GDP for a total of $669 billion dollars. The Baltics and Finland composed 15.40% of Russian trade (see Table 2). The Baltic economies rely more heavily on trade than the Russian economy. Estonia’s trade amounts to 154% of its GDP, and trade with Russia is 9% of total Estonian trade. Therefore, this policy would negatively affect the Russian economy, but is outweighed by the risk of severe economic downturn in the Baltics and increased vulnerability of Baltic energy supplies and infrastructure. Cutting off Russian trade from the Baltics and Finland should only be implemented if there is no doubt that funding would flow quickly and at a level the Baltics would normally earn from exports.
In replacing the approximate $8 billion in lost trade to the Baltics, it is important to note that this is strictly the amount needed to substitute for Baltic/Finish exports. An additional $1.6 billion to replace lost Swedish exports to Russia is included due to its importance to the Baltic banking sector. For example, Swedish banks compose 80% of Estonian banks. Sweden faces continued supply shortages and high prices in their housing market, and any further adverse effects on their economy only increases the risk of a downturn. A Swedish economic slowdown, resulting from loss of Russian trade, would likely spillover into the Baltics and Finland.
The $8 billion cited above is purely exports, and assumes the Baltics and Finland can find substitutes for previously imported Russia goods that continue to flow without Russian interference. This number does not include additional funds that may be necessary to assist Latvia and Lithuania overseeing efficient allocation of these funds and preventing corruption in distribution. Estonia’s low level of corruption excludes it from these concerns.
The potential ramifications for Baltic energy are of significant concern. A loss of imported Russian energy would require increased imported liquid-natural gas (LNG). Non-Russian LNG currently comes from Norway and the United States into Lithuania’s Klaipeda port. The possibility of a Russian response to impede these imports, such as “accidently” parking their navy or having ships “break down” in such a way to block access to that port would cripple Baltic energy generation. There is no other port currently in the Baltics equipped to handle LNG, and Estonian shale oil production would not be enough to supply all three Baltic States.
In terms of infrastructure, the Baltic states have announced that they will disconnect their electric grids from Russia, in order to prevent Putin from manipulating the flow of electricity. The project is not expected to be complete until 2025. Therefore, the possibility for coercion from Russia persists. This coercion would be highly persuasive if combined with interfering with LNG shipments into Klaipeda.
The second concern is the necessity for appropriate timing of the funds to the Baltics and Finland. EU Structural Funds (EUSF) to the Baltics planned for 2014 did not start flowing until 2016. The 2-year delay of EUSF, supporting investment projects in the Baltics, lead to low investment and reduced growth. If export replacement funds become a multilateral project, the concern is the funds will be delayed in either starting and/or getting to full capacity. The Baltic countries’ reliance on international trade implies a high economic sensitivity to any funds cushioning against lost exports, so these funds would need to start flowing close to or at full capacity within a short time to prevent the start of an economic downturn in the region.
Blocking the Gulf of Finland straight would prevent Russian maritime exports to the Atlantic Ocean from St. Petersburg. This completely relies on Finish cooperation, as they control the entrance into the Gulf. If this cooperation materialized, Russia would still have the ability to utilize their Novorossiysk port on the Black Sea, from which Russia exports mostly grain to the area, and its Vladivostok port on the Pacific Coast. Russian exports would therefore suffer but would not be completely eliminated.
Current and future sanctions play an important role in deterring Russian aggression towards its neighbors, but it is important to recognize the dangers of completely cutting off trade with Russia. This policy would have the potential to destabilize the Baltic economies, in addition to Sweden and Finland, without sufficient aid to replace the lost trade. In addition to hurting valuable NATO allies, the failure of such aid to materialize may work to push the Baltic States closer to Russia in order to avoid a deep economic recession. Russian aggression may become a tougher and tougher pill to swallow, but facing an $8 billion price tag and risk of pushing the Baltics towards Russian cooperation
 The Baltic States are Estonia, Latvia, and Lithuania.
 World Bank
 Note that 154% of GDP indicates the value of all goods coming in and out of Estonia are worth 1.54 times as much as the overall Estonian Gross Domestic Product.
 “Banks in Estonia”. The Banks.eu