On 1 July, Russia closed seven rail border crossings with Estonia, Latvia and Finland. The sudden move is underpinned by political and economic considerations. Russian Railways (RZD) stands to benefit most, Central Asian companies take a hit.
Former Estonian Minister of State, entrepreneur and economic export Raivo Vare shared those views with the local publication ERR. Russia’s motivation for closing the border crossings has more than one side.
“It is clearly intended as a signal”, Vare is quoted as saying. “Until recently, these rail routes were primarily used to transport goods that were not subject to sanctions or cargo destined for or originating in Central Asia. This is now clearly a measure favouring Russian ports, because goods that are not under sanctions, as well as Central Asian cargo, can instead be routed through Russian ports.”
Beyond Russian ports, RZD stands to benefit most from the border closures, according to Vare. Challenged by financial downturns, the company has been forced to fire employees and cancel infrastructure projects. Redirecting freight to Russian ports will allow RZD to transport more goods.
Vare adds that it also sends a political message to the Baltics: “We don’t need you on the other side of the border”.
Fuel crisis and rerouting
“It [RZD] also has a diesel fuel problem, because all cross-border rail transport relies on diesel locomotives and those M62 locomotives consume a great deal of fuel”, Vare continued. Reports suggest that Russia is facing fuel shortages across the entire country and has resorted to fuel imports in order to meet demand.
The consequences of the Russian move are, for now, twofold. For one, says Vare, freight needs to be rerouted. This is “very expensive” and disrupts delivery plans of many companies. One might add to this that there are trains now stuck at the border crossings. Russian media reported that two trains got stuck on the Russia–Estonia border crossing on 1 July.
Secondly, this move will hurt Central Asia. Companies from the region sent their freight through the Baltics, to be transported further from their ports. Now, these goods need to go through Russian ports instead.
“For Central Asia, this means higher costs for both imports and exports because rail freight rates in Russia have increased and Russian transport services are generally expensive”, Vare is quoted as saying by ERR. “As a result, the companies involved in these trade routes will all suffer — not only in Central Asia, but also on this side of the border, including businesses that handled trade with Central Asia.”
Lithuania is spared
The third Baltic country, Lithuania, has notably been excluded from the list of closures. This is likely because Lithuania is a transit country for freight going to Russia’s exclave Kaliningrad. The Klaipėda port also occupies a vital position for Russia. It is the only place where freight bound for eastern destinations can be transshipped. Russian fertilisers, an important export product, also pass through this port.
