IntroductionKaliningrad is an oblast of Russia since WWII. It is situated between Lithuania and Poland, and is the westmost territory belonging to Russia. This geographical position gives it much importance because of its proximity to the western world. Being sandwiched between two NATO countries, it is secluded from mainland Russia.NATO and Russia have not looked eye to eye ever since the cold war. Treaties such as the CFE, agreed upon by both, to keep both in check are breaking down. This along with the occupying of Ukraine, and the Syria situation is worsening relations.To this NATO began the construction of the Aegis missile defence system in Romania. To Russia this was a major risk. In case of a war the shield will function till a counter-attack can be launched. This initiated the militarisation of Kaliningrad. Various missiles reside in Kaliningrad, including the nuclear Iskander-M. This guide talks about the current situation in Kaliningrad and what caused it.BackgroundLithuania 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, partialy for supporting the new governor who was handpicked by Putin. It was an initiative which seems to have been designed to reduce foreign investment rather than attract it. This project gave locals privileges such as tax-free status for six years and 50 percent off tax over the next six years along with a 10 year long “provisional period”. But it has failed to deliver results.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 was signed at the end of the Cold War. It eliminated the Soviet Union’s enormous quantitative advantage in conventional weapons in Europe by setting limits on the number of tanks, 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 collecting for a blitzkrieg-type offensive, which can trigger the use of nuclear weapons in response.Russia suspended its implementation of the CFE Treaty in 2007, claiming that 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 can lead to the creation of an effective, new conventional arms control regime in Europe. Below listed in Table 1 are various advantages and disadvantages of the location of the Kaliningrad oblast. These are mainly economic in nature.Current situations in KaliningradBelow are various aspects of the current situation in Kaliningrad.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. Primary cause of militarisation of KaliningradThe US has activated the Aegis missile defence system in Romania on 12 May, 2016. The land-based Aegis ballistic missile defence system has been equipped with long-range radar, and Standard Missile(SM)-3, which can intercept missiles and eliminate them, when airborne. The defense system was devised by the ex-US President George Bush. Later, the missile defense system was realised by Barack Obama in 2009. Phase II – construction in Romania was started in 2013. Construction of phase III site has also begun in Poland on the day after launch of the Romanian systems. In Poland it is scheduled to be completed in 2018.The activation of defense system in Europe has increased complications in Russia’s relations with NATO. The defence system has been observed by Russia as a threat to its national security. 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 thinks it as a wider strategic programme of the US and it would affect the balance of the region. It has repeatedly raised objections to military escalation in its ICWA. More recently, Russian Prime said at the Munich conference of 2016 that NATO’s policy towards Russia is “unfriendly and generally obdurate.” He stated that Russia and the West are moving towards a “new cold war”, and Russia is being considered as the greatest threat to NATO and its allies. Various apparatus of addressing the concerns have died out and partnership initiatives are ending steadily.Claims by NATOThe NATO claims that the missile defense system is required to prevent hostilities against its allies from missile threats from outside the Euro-Atlantic space. According to the US as long as Iran keeps developing such missiles, the US will look out for its allies. Officials from the US and NATO state that the defense system is not targeting Russia. They talked about 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 put forward the argument that SM-3 could not change the strategic balance of the region because the missiles cannot intercept Russian intercontinental ballistic missiles (ICBMs) and do not carry any explosives. Technically these missiles are designed to destroy high-velocity targets by hitting them head-on. Russia was also assured that nuclear capable missiles will not be placed in the Romanian base.Reactions by RussiaThe construction of the site in Romania has not surprised Russia. Russia claims that it will fuel an arms race in the area.Thus, Russia will not stop re-arming its forces. Russia criticized NATO for the use of the Iran programme as an excuse to build the defense system in Europe. These missiles cannot reach any territory belonging to Europe. Iran has already signed the nuclear agreement with the P5 plus Germany in July of 2015. Russia blames the US for stepping up the military build-up on its borders in order to surround it. It voiced complaints over the installation of SPY-1 radars in the Romania site, which can be utilised for spying on missile tests. The Romanian system can also be re-equipped with offensive missiles.Geopolitical ImplicationsThe start of the defense system will have multiple implications, for security dynamics in Europe, relations between Russia and US, the treaties between them, the war in Syria etc. Russia’s relationship with the US has worsened by NATO enlargement, unsolved arms control issues, policies of some East European countries and political trends in the region. These have been further tensed by the Ukraine and the Crimea crisis. Poland, Romania and other Baltic countries are voicing their complaints over growing Russian influence in the region. Poland wants increased military presence of NATO in the area. According to Poland, the only logical thing to do is to increase transatlantic security. NATO is steadily increasing its presence in the area. The US has also announced plans for an increase in European Reassurance Initiative funding after 2016. It might end up deploying more troops in Eastern Europe. The increased military presence will boost the US’s ability to conduct military exercises. In the meeting of NATO countries held on 19 May 2016, it was agreed that the NATO’s role has to be increased to maintain stability beyond their borders. NATO will also train the local forces. NATO has started supporting training of Iraqi security officers for developing Special Forces. At the meeting, it was also decided to do prepare for helping Libya. NATO conducted Anakonda 16 – a military exercise in Poland in the second week of June, 2016. More than 30000 troops from 24 countries were involved in the event.. It is one of largest military exercises in the post Cold War era in the Eastern Europe, with the US providing more than 14000 troops. On the other hand, Russia is repetitively accusing NATO of pursuing a policy which is aggressive and can alter the security balance of the post Cold War era. NATO has been breaking its promises by expanding towards Eastern and Central Europe. Vladimir Putin questioned the relevance of the expansion towards the East after the end of the Cold War. Due to this, Russia is also enhancing its military presence in the area. In April of 2016, the Russian Sukhoi Su-24 Fencers did close passes very near to the USS Donald Cook in the Baltic Sea. Russia has been developing its capabilities in Kaliningrad. It has already deployed the S-400 air defense system and Iskander-M missiles. Russia can also swiftly move its land – based anti-ship missiles to Kaliningrad, if they need to. The Iskander has range of up to 500 kilometers. Poland is in range of them. Due to persisting conflict and tension, devices of consultation and cooperation between the two sides have grown inefficient. Cooperation between Russia and NATO has been halted ever since the crisis in Ukraine. Although Russia and NATO did hold a meeting in 2016 almost after two years, they could not iron out their differences. The NRC meeting ended without any agreements on reducing the risks of close military encounters between both 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 Intermediate Range 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 is shifting as well. Finland, Denmark, Norway, Iceland, and Sweden have signed a joint declaration to improve their military cooperation in terms of increased joint military exercises, exchange of intelligence and stronger defence industries. The factor which determines their move is a changed security environment in the area. These countries believe that the crisis in Ukraine and military activity in the region have changed the environment. The US supports this cooperation of these states. 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 might not be liked by Russia.Currently, the situation in the south eastern part of the European surroundings – Middle East and North Africa – is delicate. Tension between NATO and Russia is affecting the political situation in the Middle East. Though Russia and US are currently engaged in consultation, fundamental differences and diverse strategic goals might not easily lead towards a possible 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.Economic consequences have created differences in the EU over policy towards Russia. Some of the EU member states do not favour the extension of economic sanctions against Russia because they share comprehensive economic linkages and 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.ConclusionPolitical and security structures evolving in Europe are not inclusive. Russia remains out of the security architecture placed in Europe. Political mistrust between Russia and the West has further escalated. Both are taking precautions and counter measures to balance each other out in Eastern Europe regions around it. Several twists and turns have emerged in their relations in the post Cold War era. Russia seems to be disillusioned about the West after the NATO enlargement and escalation of military activity in its neighbourhood. Consequently, Russia has also begun to take measures to deal with emerging challenges in its neighbourhood. Some of the Eastern European countries are demanding greater military presence of NATO, while some are condemning it as they are dependant on Russia. The next NATO summit seems to be important as NATO countries will discuss changed regional security environment and are expected to decide future course of action in Eastern Europe. Military escalation of NATO in Eastern Europe can fuel more competition and political rivalry with Russia.