Russia Seeks to Divert Cargo Business Away from Baltic States

On October 18, Russia’s Kommersant reported that the state-owned Russian Railways was considering an unprecedented discount of 25% in order to facilitate a strategy of transferring the shipment of Belarusian oil products away from the ports of the Baltic states toward those of Russia.  The discount — as well as other measures being contemplated — is overtly intended to penalize these countries by denying them important freight, transport and logistics business and revenue.  The logistics and transport industries are major components of the economies of these countries.

This initiative has been under discussion for some time, including at a meeting held on September 28 that was attended by the recently demoted senior Putin ally and special envoy, Sergey Ivanov.  According to one source, this move is motivated by the notion that “Rosneft…is not going to feed the ports of countries that supported European sanctions against Russia and is ready to gradually redirect their cargo to Russian ports by 2018.”

In addition to Rosneft and Russian Railways, the other prominent Russian company involved in this discussion at a senior level is pipeline company, Transneft.  At a meeting with Putin on September 12, the President of Transneft, Nikolai Tokarev, reportedly echoed the above sentiment and timing, offering that Russia could divert its petroleum products presently transiting through the Baltic ports of Ventspils, Klaipeda and Riga to the Russian ports of Ust-Luga, Primorsk and Novorossiysk by 2018.

While it appears the Kremlin is maneuvering to deny the Baltic states the cargo shipment business of Russian products as well, it appears to be starting with an effort to persuade Belarus to move first.  The 25% discount being discussed would allegedly make the less economic and longer path for Belarusian products through Russian ports approximately the same cost as the country’s present route through Latvia and Lithuania.  At present, some 90% of Belarusian oil products presently flow through Baltic and Ukrainian ports.

Diverting Russian and Belarusian products to Russian ports, however, implicates a significant amount of cargo and questions remain about capacities and the viability of this strategy (and the percentage of overall cargo shipments that these ports might be able to handle).  According to reports, a backgrounder document circulated with regard to these meetings indicated that Russian cargo transiting Baltic ports is around 49 million tons per year.  The document estimates that Russian terminals are yielding some $1.3 billion in lost revenue annually to Baltic ports as a result of this business, resulting in the “subsidization” of governments that are pursuing “unfriendly” policies toward Russia.

It is worth pointing out that President Lukashenko of Belarus had previously declared (in 2012) his intention to move cargo shipments away from the Baltics toward Russia, without following through on this threat.  Nevertheless, the Baltic states have taken note of this threat and the significant economic implications it would likely portend.