The strategic imperative of the EU building bridges with Mongolia

Key takeaways:

From isolation to integration

Throughout much of the 20th century, Mongolia’s engagement with Europe was restricted by Ulaanbaatar’s subservience to Moscow. While the Soviet Union provided economic support and military aid, it also exerted significant influence over the country’s political system, turning it into a Soviet satellite state. However, with the Soviet Union’s collapse in the early 1990s breaking the shackles of Mongolian dependency, the population demanded “freedom, human rights, a market economy, and private property”. Peaceful democratic demonstrations set the stage for the country’s first multi-party elections in 1990, a new constitution, and the liberalization of its currency, trade, and economy.

Reforming the political and economic system proved challenging for Mongolia. The country experienced a painful “transformational recession” in the first few years, marked by a collapse in GDP, low productivity, widespread unemployment, and inflation. Although deepening bilateral relations was not especially high on the European foreign policy agenda, steady progress was made in the early years after Mongolia gained independence. This is illustrated by the evolution of the EU’s development and humanitarian assistance to Mongolia. For instance, the European Commission’s Humanitarian Aid Office regularly provided emergency relief to alleviate the impact of harsh winters and droughts. Mongolia has also benefitted from EU development cooperation programs “aimed at supporting its economic and democratic development”.

Considering the country as an “important partner to develop close ties with”, economic interests have increasingly factored into Europe’s Mongolia policy. The 1993 agreement between Mongolia and the European Economic Community, the precursor to the EU, was a major milestone that promoted trade, investment, and economic cooperation. In 2008, Mongolia joined the Asia-Europe Meeting with the consent of European partners, benefitting from a forum that “fosters political dialogue, strengthens economic cooperation, and tackles global challenges”. However, the most significant leap was the EU-Mongolia Partnership Cooperation Agreement, signed in 2013 and taking effect in 2017. The deal highlighted the range of shared interests between the two parties, paving the way for enhanced cooperation on trade, investment, combating crime, and promoting sustainable development.

Unlocking the benefits of closer Europe-Mongolia ties

With escalating strategic competition between the US-led liberal international order and what has been called the “Axis of Upheaval”, a new era of great power politics has emerged. Against this backdrop and with democracy declining globally, supporting nations that uphold liberal principles has become an increasingly important aspect of the broader Western strategy of countering autocratic tendencies globally. With President Donald Trump’s second term in office underway, the US’ inevitable turn toward isolationism underscores the necessity for Europe to be more proactive. Once described as an “oasis of democracy” in an otherwise authoritarian region by former US Secretary of State John Kerry, Mongolia is an archetypal example of a country Europe should support. With Ulaanbaatar’s commitment to democracy, economic liberalism, human rights, and the rule of law, a successful Mongolia is in Europe’s best interests. In an optimal scenario, Mongolia could become a success story that inspires other nations to democratise. Whereas Mongolia’s developmental failure risks having the opposite effect.

With Russia leveraging energy as a “tool to pressure Europe”, destabilizing forces in resource-rich Africa, and a trade war with China, expanding bilateral economic ties could reduce the EU’s supply chain vulnerabilities. The bloc has recognized the importance of alleviating its “strategic dependence” on unreliable foreign actors and diversifying suppliers. As a landlocked country living under the shadow of its expansionist, authoritarian neighbors Russia and China, Ulaanbaatar has similarly acknowledged the need to diversify its international partnerships. The Mongolian government formalised the country’s desire to “broaden its international partners” through the “third neighbour” approach in 2019. Expanding ties with Europe is a pertinent way of achieving this and in February 2024, Mongolia entered into a strategic partnership with Germany, prioritizing policymaking, security, trade, education, science, and environmental protection. Germany is the first EU country to enter such an agreement with Mongolia. The existence of common ground between the EU and Mongolia, combined with a mutual desire to diversify trading partners, makes a bilateral deal involving the whole bloc a logical and realistic next step. With Mongolia’s abundance of natural resources, Europe could look to increase imports, particularly of critical minerals, to reduce its dependency on China, which currently dominates the supply chain. Europe must learn its lesson; now is the time to deepen relations with reliable partners.

Admittedly, as a landlocked nation, boosting trade with Mongolia presents certain logistical challenges, including its reliance on China’s and, to a lesser extent, Russia’s railway connections and ports to export resources to international markets. Against a backdrop of growing trade frictions between the EU and China, it is important to recognise the vulnerability of this supply chain. If relations deteriorate further, China could undermine the flow of Mongolian critical minerals to Europe by exerting pressure on Ulaanbaatar through trade restrictions or limiting access to railways and ports. However, considering the supply risks of purchasing commodities directly from China, Mongolia remains a preferable alternative as a country that does not act against European interests.

Taking into account Europe’s objective of advancing the green transition to mitigate global warming, there is an important environmental angle to boosting bilateral trade. Mongolia’s critical minerals, which can be applied in renewable energy technology, hold the potential to accelerate Europe’s journey toward net zero carbon emissions. For example, Mongolian copper and fluorspar are essential for manufacturing electric vehicle batteries and motors, wind turbines, solar panels, and energy storage systems. 

Additionally, while nuclear power is not a renewable energy source, Mongolian uranium can be used to produce low-carbon nuclear energy. The European Commission recognizes the potential of nuclear energy as an emerging low-carbon technology, particularly through Small Modular Reactors (SMRs) that require less cooling water and offer greater flexibility in site selection than larger power plants. In February 2024, The European Industrial Alliance on SMRs was launched to accelerate the development, demonstration, and deployment of SMR projects across the continent. Although it has encountered delays, a $1.6 billion deal was struck between France and Mongolia in 2023 to fuel French nuclear reactors. Should it prove too difficult to roll out renewable energy solutions on the scale needed to address the severe and looming implications of the climate crisis, nuclear energy could provide a buffer to delay the worst of climate change and provide time to implement renewables.

Furthermore, expanding the imports of Mongolian uranium could also reduce the EU’s reliance on Russia. While the EU-Russia fossil-fuel trade declined significantly following the invasion of Ukraine, trade in nuclear fuel products has increased steadily. Russian company Rosatom continues to supply EU countries, particularly in Central and Eastern Europe, with both conversion and enrichment services as well as deliveries. As European countries do not mine significant volumes of uranium themselves, securing agreements with Mongolia should be a priority for EU policymakers.

With climate change set to disproportionately impact Mongolia, a strategy that continues and expands programmes to reverse deforestation, increase climate action, and protect biodiversity would be appropriate. This could include further investment from the European Investment Bank and facilitating the transfer of knowledge and training personnel by incentivizing NGOs. Support could be offered through partnerships between European and Mongolian companies on problems such as sustainable mining practices, with emphasis on issues including environmentally responsible extraction, water management, and land rehabilitation. The EU could also provide expertise, funding, and partnerships to improve Mongolia’s infrastructure as the country’s inadequate railways and roads currently limit resource exports. Strengthening bilateral economic ties should build upon the foundation provided by the EU-Mongolia Partnership Cooperation Agreement and focus on securing deals in areas of European interest such as critical minerals.

A look ahead

While there is great potential in the EU deepening its partnership with Mongolia, it is important to be realistic about what is achievable. Considering Mongolia’s inescapable geography, leaders should understand that Russia and China will always exert greater influence over Mongolian affairs. Ulaanbaatar remains heavily dependent on Moscow for electricity and petroleum imports, while 90% of its exports are directed to China. The EU should therefore endeavour to be a reliable “third neighbor” in keeping with Ulaanbaatar’s strategic interests and act as a counterbalance to Russia and China without undermining relations. With Mongolia’s foreign policy contingent on its status as a “permanently neutral state”, placing undue expectations on cooperation with Mongolia, such as military collaboration, risks destabilizing the country. Europe should thus focus on building bridges with Ulaanbaatar rather than burning those between other nations.