Trump, Putin ties could be tested by NATO

Vladimir Putin and Donald Trump
Sasha Mordovets | Getty Images; Brian C. Frank | Reuters

A potential rift over the future of the world's biggest military alliance could pose problems for the relationship between President-elect Donald Trump and Russian President Vladimir Putin.

NATO, the Western military alliance founded in Washington in 1949, has been key in pursuing a military defense system sited along Russia's western border.

Last week on Russian television, Putin was applauded when he said Russia could "choke" NATO if it continued to expand toward Russian territory.

Now Russia has said it plans to deploy air missile systems to the Russian outpost of Kaliningrad, a move described by the U.S. State Department as "destabilizing to European security."

Professor Malcolm Chalmers of the Royal United Services Institute said despite Russian saber-rattling the new U.S. president won't withdraw far from the current position on NATO and European security.

"Trump will try again a reset with Russia, and remain, like Obama, reluctant to get involved with Ukraine. But I don't think NATO security guarantees will weaken, and Putin would be foolish to test this," Chalmers told CNBC via email.

However Tate Nurkin Senior Director of Aerospace, Defense & Security at IHS Markit believes any lack of commitment by the U.S. to the alliance will see Russia testing the water.

"If the U.S. under Trump is overly friendly to Russia or wavers in its commitment to the alliance in general and to its Eastern and Baltic allies then we should expect Russia to push and push very hard to test NATO's resolve," he said in an email to CNBC Tuesday.

Nurkin warned that Russia is well skilled at unsettling weaker neighbors as was recently witnessed in Crimea and Eastern Ukraine.

"So, more bullying and coercive diplomacy, which creatively leverages Russian military strength, cyber warfare, creation of narratives to weaken target states and societies and mobilize Russian nationalist communities," Nurkin said.

Trump on NATO

Members of the U.S. Army 173rd Airborne Brigade demonstrate urban warfare techniques as Ukrainian soldiers look on on the second day of the 'Rapid Trident' bilateral military exercises between the United States and Ukraine that include troops from a variety of NATO and non-NATO countries on September 16, 2014 near Yavorov, Ukraine.
Getty Images

The United States accounted for about 72 percent of NATO members' total defense spending in 2015, according to the alliance.

Trump has questioned that level of funding and said while he wants to keep the alliance, other member countries must pay more for defense.

While on the campaign trail in July, Trump told The New York Times: "If we are not going to be reasonably reimbursed for the tremendous cost of protecting these massive nations with tremendous wealth … I would be absolutely prepared to tell those countries, 'Congratulations, you will be defending yourself.'"

The president-elect has also previously described NATO as "obsolete", a sentiment echoed by a Russian diplomat who told Canadian television on Sunday that NATO was a "cold war relic."

But since his election victory, Trump appears to have softened on his anti-NATO rhetoric.

A brief NATO statement released on Friday announced that Trump and NATO Secretary General Jens Stoltenberg had both underlined the military alliance's "enduring importance and discussed how NATO is adapting to the new security environment, including countering the threat of terrorism."

NATO members are obliged to spend at least 2 percent of GDP on defense, but only the United States, the United Kingdom, Greece, Estonia and Poland hit that target.

Speaking to CNBC on Monday, Bryn Jones, fixed income fund manager at Rathbone, said if the United Kingdom leaves the European Union and the United States withdraws NATO support, Russia would have little trouble moving in to the Baltic states.

He said while he wasn't convinced it would happen, investors should keep a close eye on asset classes linked to the region.

"Estonia, Latvia, Georgia [in the Caucasus] — all that sort of area.

"Bonds and currencies associated with those countries will give you a clear picture of risk. We saw what happened to Ukraine, its currency got absolutely destroyed," he said.