Moldova: Security Snapshot
Key Takeaways
Moldova has been severely impacted by the war in neighbouring Ukraine, triggering an energy crisis and sharp economic downturn in Q4 2022.
Assistance from Romania and the EU has since helped Moldova to establish energy security and greater geopolitical autonomy.
Inflation is now stabilising, and judicial reform measures are making progress in tackling corruption. However, continued success is required to inspire confidence in Moldova’s business environment.
Political tension remains with the pro-Russian minority population in Transnistria and Gagauzia who oppose the government’s EU accession agenda.
Moldova has significant untapped investment potential in the energy, manufacturing and tech industries. The ability to capitalise on this potential, however, is dependent on Chisinau’s continued steps towards economic and political security in the next 5 years.
Overview
Moldova currently faces a high level of political and economic risk stemming from both internal and external factors. As the second poorest country in Europe, Moldova has suffered exceedingly from the knock-on effects of war in neighbouring Ukraine. This has exacerbated the economic situation and exposed divisions over Moldova’s geopolitical future between the EU and Russia. Despite seeking support from the EU and NATO to mitigate these challenges, the social consequences of economic stress have led to protests and subsequent security concerns among Moldova’s leadership. As such, the government must perform a delicate balancing act to retain domestic political control whilst working to ensure the prosperity of Moldova’s economic and geopolitical future.
Political Security
Protests in Moldova have largely been fuelled by anti-EU/pro-Russian parties. The SOR Party, along with other opposition parties, garnered more than 30% of voter turnout in 2021 and exerted enough pressure to bring down the former government in February 2023. The SOR Party was banned in June 2023 amid allegations of facilitating Russian state interference in protests with the aim of destabilising the government and installing a Kremlin-backed leadership. Aside from this, the party has been sanctioned by the US for its links to Russian meddling, and its leader, Ilan Shor, is currently in Israel avoiding extradition to Moldova on corruption charges. Despite this suspected subversion, President Maia Sandu’s PAS party remains strong in parliament with a comfortable majority. The Prime Minister, Dorin Recean, is committed to EU integration and implementing reforms to reduce Russia’s influence in Moldova.
Whilst opposition is primarily concentrated in the semi-autonomous, pro-Russian breakaway regions of Transnistria and Gagauzia, protests have predominantly occurred in the Moldovan capital, Chisinau. These breakaway regions have Russian cultural and linguistic traditions and have sought to protect them from ‘Europeanisation’ by adopting autonomous status in the 1990s. Transnistria, which is sandwiched between the Dniester River and the Eastern border with Ukraine, currently hosts over 1500 Russian peacekeeping forces following a brief conflict in 1992 that ended in a ceasefire. The presence of pro-Russian insurgents and Russian forces in Transnistria poses a noteworthy risk to Moldovan security due to their opposition to EU and NATO integration. They possess the capacity to engage in military, terror, or intelligence operations if further integration and cultural assimilation efforts are pursued. Moreover, there is a limited risk that Russia could exploit dormant forces to annex Transnistria in a similar fashion to Ukraine's Donetsk and Luhansk regions, given Transnistria’s majority Russian-speaking population. This likelihood has somewhat diminished with recent resistance to Russian advances in Kherson, yet any future Russian advances on Odesa would significantly increase the likelihood of incursion into Transnistria which is located just 70 kilometres Northwest.
Political map of Moldova including breakaway regions of Transnistria and Gagauzia. ©NationsOnlineProject
Political relations with Russia further deteriorated in August 2023, with the expulsion of all but 10 Russian diplomats from the embassy in Chisinau. This action was prompted by the allegations of destabilisation attempts attributed to Russian diplomats and state-backed actors. The expulsion has further increased tensions with Russia and exacerbates the sentiment of modern de-Russification in Eastern Europe. Increasing Moldovan talk of unification with neighbouring Romania has also contributed to increased tension with both the Russian government and pro-Russian Moldovans; a move which would see the territory of Moldova immediately under the influence of the EU and NATO. Despite relatively widespread support, this outcome is unlikely in the current geopolitical climate, with Chisinau overwhelmingly focused on accession to the EU as an independent state. It does however highlight the population’s concerns about the threat from Russia and desire for improved economic opportunity.
Economic Security
Until recently, Moldova relied heavily on Russian gas for energy and electricity. This gas powered the Cuciurgan power station in the breakaway region of Transnistria, generating electricity for Moldova. However, Russia's 2022 invasion of Ukraine damaged much of this gas infrastructure and supply cuts by Gazprom that October exacerbated Moldova's vulnerability. This led to an energy crisis characterised by blackouts and protests, revealing Moldova's economic struggles from years of corruption and poor living standards post-Soviet Union. Romania stepped in, providing discounted electricity whilst the EU delivered financial aid and grants to help Moldova transition to new energy systems. Moldova has now largely diversified its energy sources by purchasing gas from Romania via the converted Trans-Balkan pipeline. This is now supplied by reverse flows from LNG terminals in Turkey and Croatia, as well as pipelines from producers in Central Asia and the South Caucasus. These new networks and investments present ample opportunity in Romania and other Balkan states for businesses specialising in midstream and downstream operations. Similarly, companies offering renewable electricity generation and transmission infrastructure can capitalise on demand by implementing the numerous investment opportunities put forward by European investment institutions.
However, this newfound energy security presents a challenge for Transnistria. The region relies on free Russian gas, and its subsequent sale to Moldova, to constitute a substantial portion of its budget. Should Gazprom cease the supply of free gas, Transnistria would face an economic crisis—a remote possibility considering Moscow's considerable political leverage through this arrangement. A more plausible scenario is the eventual termination of Transnistria's electricity sales to Moldova as power lines with Romania reach full capacity. At that point, Transnistria will be confronted with the choice of embracing Moldova's governance and legal framework or seeking Russia's intervention—the likelihood of which is limited given Russia’s preoccupation with Ukraine.
A memorial T34-85 tank in Tiraspol, Transnistria.
An influential factor in Moldova's economic challenges arose from the influx of refugees from neighbouring Ukraine. Since the outbreak of war in 2022, nearly 1 million individuals have crossed the border from Ukraine, with 120,000 opting to stay in Moldova. This influx of refugees put significant pressure on Moldova with its population of only 2.6 million. Rapid allocation of public funds to aid these refugees, coupled with a variety of protective economic measures, caused the inflation rate to rise to 34.62% by October 2022. This surge fuelled public apprehension regarding the government's economic competence. Throughout 2023 the refugee flow has stabilised, and inflation has subsided to 13.3%, with a projected further decrease to 4.8% in 2024. This decline is indicative of Chisinau’s progress towards economic stability and significantly improved prospects for both investor confidence and citizen well-being.
Beyond safeguarding the economy against external shocks, Chisinau has proactively undertaken internal measures to bolster its economic foundation, including targeted initiatives to curtail corruption and enhance judicial integrity. The efficacy of these measures stands as a pivotal prerequisite for Moldova's EU accession. Collaborative efforts between the Anti-Corruption Prosecutor's Office and the National Anti-Corruption Centre have yielded progress in investigating and prosecuting prominent corruption cases, notably that of former Prime Minister Iurie Leanca. However, corruption still retains a foothold within the judiciary, where vulnerabilities to bribery persist. A key focal point in Moldova's anti-corruption strategy involves identifying and setting precedent with respect to corrupt judges and prosecutors. Progress so far provides a promising outlook, so long as its significance remains at the top of Chisinau’s priorities. Eliminating corruption is instrumental in aligning the country’s judicial system with transparency and legitimacy, fostering an economic environment wherein businesses can confidently operate.
