The North Atlantic Treaty Organization (NATO) recently gathered in Vilnius, Lithuania, where the main objectives were to reach an agreement that Sweden could join the security alliance–which Turkey had previously blocked—and to strengthen support for Ukraine. Although the alliance accomplished their main goals, the dynamics that ensued among the 31 member countries illustrated the complex negotiations and delicate balance of interests within the alliance as they navigate the path forward for Ukraine and strengthen their collective defense against external threats.
Major Summit Outcomes
Baltic boost: Turkey’s decision to join the unanimous vote for Sweden’s accession to NATO demonstrates the alliance’s unity, which is crucial in a world of political and economic interconnectivity. NATO militaries have worked with Sweden for years, but its membership will increase the integration of their air and maritime defense capabilities into NATO war plans and make it more difficult for Russia to engage in military aggression in the Baltic Sea. This is a significant development for the economic security of the Baltic Sea region, home to approximately 85 million people across eight EU member states (Denmark, Estonia, Finland, Germany, Latvia, Lithuania, Poland and Sweden). The region generates almost a fifth of the EU’s GDP.
Ukraine gains: Ukraine secured comprehensive security commitments from the G7 but stopped short of receiving a clear path to NATO membership. However, the newly established NATO-Ukraine Council and bilateral agreements with the G7 states will ensure support and prepare Ukraine for membership once the war is over. The joint communique also denounced countries complicit in fostering Russian aggression and held Russia fully responsible for its “illegal, unjustifiable and unprovoked war of aggression against Ukraine.”
Two percent minimum spend: The communique also laid out how NATO members pledged to spend at least two percent of their GDP on defense in the future. This has been a controversial yardstick in Europe because it emphasizes the economic effort made by each country without accounting for their real military capabilities, such as raw materials availability or production capacity. Still, European Allies and Canada have increased defense spending over the last eight consecutive years (NATO). The statement also specifically calls for a stronger European defense industry and more transatlantic defense industrial capabilities to meet increased production demands.
China relations: The joint communique consistently highlighted concerns China poses to the international rules-based order, reflecting members’ perspectives of its role in the global commons, particularly maritime, space and cyberspace. Additionally, NATO allies discussed the various challenges arising from China relations, which have led to tensions around economic coercion and competition, particularly in Africa and the Middle East.
What to Watch
The summit’s outcomes have far-reaching effects on global security, diplomacy and stability, which have follow-on impact for business:
Big role for private sector in collective defense and Ukraine reconstruction: While Ukraine will likely not join NATO before the war ends, the alliance has committed to helping them fight and will need a way to meet and sustain the entailing long-term demands for military production. NATO expects the private sector to play a role in collective defense through production and procurement in the defense industrial base. The increased demand, especially for small and medium-sized enterprises, will also call for enhanced supply chain transparency and agility.
The next steps for Ukraine’s reconstruction and recovery require active engagement, transparency and innovative partnerships between governments and businesses to address the complex efforts already underway. This ground-floor involvement in reconstruction efforts can offer a huge promise for private sector return on investment with government-backed risk assurance through public-private partnerships.
Fresh wave of pressure on third parties to enforce sanctions: The United States has been applying more pressure on countries aiding Russia with evading sanctions. Now that NATO has condemned support for complicity with Russian aggression, businesses operating in “third countries” not signatories to U.S. and EU sanctions should expect a further crackdown on witting or unwitting efforts to facilitate evasion. Company export control compliance and due diligence teams will continue playing a crucial role in mitigating this risk.
Turkey’s balancing act: Turkey’s withdrawal of objections to allowing Sweden’s entry into NATO may complicate its relationship with Russia, which could hamper efforts to reopen the expired Black Sea Grain Initiative without shocks to global food prices. Turkey plays a vital role as a neutral party able to bring Ukraine and Russia together by backing Ukraine militarily while maintaining economic ties with Russia, which benefits them domestically. They also view Ukraine as an ally in counterbalancing Russia’s control of the Black Sea, which is a critical transit and energy node linking Europe to the Middle East.
Tension will persist in China’s relationship with NATO countries: While the Biden administration has made a concerted effort to establish a floor in the U.S.-China bilateral relationship, the EU and other NATO allies have pursued a “de-risking” approach to China that aims to preserve space for constructive engagement while holding Beijing accountable for coercive economic and diplomatic activities. Regarding threats from China, the NATO communique states, “we continue to be confronted by cyber, space, hybrid and other asymmetric threats, and by the malicious use of emerging and disruptive technologies.” This statement indicates that the EU is preparing to follow the United States in implementing an outbound investment security review to curb investments in Chinese high technology sectors.
Photo credit: NATO