Can Russia’s Kaliningrad region cope without freight transport through Lithuania? Meduza explains.
What happened?
The Lithuanian authorities began restricting rail freight transport of EU-sanctioned goods to Russia’s far-western enclave of Kaliningrad on June 18. Two days later, Lithuania began enforcing the transit ban at road border crossings, as well. Now, EU-sanctioned goods from the Russian mainland can only reach Kaliningrad by sea.
Russian authorities have condemned the transport restrictions as illegal. Kaliningrad Governor Anton Alikhanov is hoping that the European Union will walk back the decision. Meanwhile, the federal authorities have threatened to take “practical” retaliatory measures against Lithuania.
What goods are on the EU sanctions list?
The list of EU-sanctioned goods published by Kaliningrad authorities is nearly 100 pages long. The restricted items range from metals, timber, and advanced technology to large household appliances, perfumes, alcohol and cigars, and even caviar and truffles.
Governor Alikhanov estimated that the sanctions cover 40–50 percent of all goods brought into the Kaliningrad region from the Russian mainland. However, a top manager at a major enterprise in the region told Meduza that “everything that fell under European sanctions” amounts to more than half of imports. In turn, Dmitry Chemakin, the former vice president of the Kaliningrad Chamber of Commerce and Industry, speculated that the volume of deliveries to the region is at risk of falling fourfold.
Which sanctioned goods does the Kaliningrad region rely on most heavily?
It’s hard to say for sure. But the sanctions will definitely have an impact given that the region is highly reliant on imports. According to the local statistics service, from January to September 2021, the Kaliningrad region imported $6.5 billion worth of goods, while its exports only amounted to $1.8 billion.
Kaliningrad businessmen who spoke to Meduza said that the sanctions on cement and other building materials, iron and steel, and paints and solvents would hurt the most (Governor Alikhanov has also highlighted these types of goods). According to Oleg Chernov, the general director of the Baltic Metallurgical Cluster, nearly 80 percent of metals and metal structures were previously delivered to the region by rail. Chernov speculated that the sanctions will delay deliveries by two or three months, and that prices may jump by 10–20 percent due to increased logistics costs. Immediate assistance from the federal center will be the only way to avoid shortages and a significant increase in prices in the industry.
Disruptions in the supply of consumer goods could also be critical for the region. The Kaliningrad authorities assure that there will be no such shortages, but others are less optimistic. For example, Evgeny Perunov, the president of the Kaliningrad Furniture Makers’ Association, said that the sanctions apply to “all furniture” and that the only hope is for a quick transition to importing goods by sea.
Will the Russian authorities be able to switch to deliveries by sea?
The Kaliningrad authorities say that making the switch is possible, but it will require additional resources — and fast.
According to Governor Alikhanov, the sea route from Russia’s Leningrad region to the Kaliningrad region (the Ust-Luga–Baltiysk line) is in urgent need of as many as seven new ships. The region intends to appeal to the federal center for help. Nevertheless, experts estimate that the price of freight transportation will rise by 3–20 percent depending on the distance and the types of goods.
Several cargo vessels have already been added to this route. In March, Vladimir Putin took part in the commissioning ceremony of the Marshal Rokossovsky, a roll-on/roll-off ferry meant to increase the volume of cargo transported along the Ust-Luga–Baltiysk line more than 1.5-fold (up to two million tons annually). In the first quarter of 2022, roughly 360,000 tons of cargo were transported in total — almost twice as much as the year before.
A fourth vessel took up the Kaliningrad route in April: the general cargo ship Ursa Major from the Black Sea port city of Novorossiysk. As of early June, it had significant spare capacity: its stowage was only at 10 percent as shippers preferred to transport cargo by railway and trucks. Russia’s Transport Ministry helped add yet another general cargo ship to the route on June 20.
According to Alikhanov, the Kaliningrad region has already made a deal with an operating company (presumably, the Northern Shipping Company) to launch an additional vessel from St. Petersburg’s Port Bronka from June 25, along with a preliminary agreement on adding another five or six ferries to the route.
Alikhanov assured that this is “more than enough” to compensate for the falling deliveries, although the situation remains “unpleasant.” According to the governor, import flows can now be redistributed, with all unsanctioned goods being transported by rail and “banned” goods by sea.
Does that mean Kaliningrad won’t have problems with imports?
Problems may still arise. The main issue for ferries on the Kaliningrad route is the uneven cargo flow: the lack of exports from the region means return trips are economically inefficient. At the same time, rail ferries headed to the region are at 100 percent capacity until at least the end of July.
The ferry service will also need to be subsidized in order to compensate carriers for the drop in revenue. According to Alexander Rolbinov, Kaliningrad’s deputy prime minister, the region has already asked the federal center for $1.2 billion rubles ($22 million) in subsidies to keep the present tariffs. However, in early June, the head of Rosmorport’s Kaliningrad branch complained that state subsidies for the operation of the Ursa Major and the Marshal Rokossovsky hadn’t been received yet.
Was Kaliningrad’s economy doing fine before the transport ban?
No, it wasn't. The region has experienced a variety of economic problems in recent years: industrial production and investment failed to grow, and dependence on federal subsidies remained high. Moreover, the tourism industry, which had been developing, may seriously suffer this year due to flight restrictions.
International sanctions against Russia are also impacting the region’s foreign trade. For example, in 2021, Kaliningrad’s farmers supplied $1.8 billion in goods to Norway, Algeria, China, and other countries — 36 percent more than the year before. Now, all of these exports are under threat. And local power plants completely lost their foreign currency earnings after Lithuania suspended electricity imports from Russia in late May.
One sector that was doing relatively well was construction. In recent years, Kaliningrad has been one of Russia’s leading regions in terms of the amount of new housing per capita. At the same time, high demand drove up prices for a variety of building materials, which are now poised to get even more expensive.
More recently, Kaliningrad has seen a downturn in construction, which has only intensified due to Russia’s war against Ukraine and the ensuing sanctions against Russia. Governor Anton Alikhanov tried to explain this to Vladimir Putin back in May, only to be publicly scolded by the president.
Explainer by Kirill Rodin
Abridged translation by Eilish Hart