Publication: Monitor Volume: 7 Issue: 161

In the future, the Baltic states’ dependence on Russian transit may be more problematic. Since independence, the Balts have tried to capitalize on their previous role by continuing to advertise themselves as a gateway to and from Russia and the other former Soviet republics. In recent months, however, Russia has taken steps to redirect its trade.

In May, Russian Transport Minister Sergei Frank said Russia wants to redirect two-thirds of Russian transit now passing through the Baltic countries to Russia’s own ports that are being built on the Gulf of Finland. The new Primorsk oil terminal, for example, is scheduled to begin operations in December. And a new mineral products terminal is scheduled to open in St. Petersburg in October, cutting into the monopoly that Ventspils’ Kalija Parks stevedore company has on Russian potassium salt exports (BNS, June 14).

To implement the redirection of transit activity, the Russian government decided in July that freight tariffs for cargo exported through Russian ports would be the same as the much lower domestic freight tariffs, meaning that Russian ports will be much more price competitive than non-Russian ports. Granted, the structure of Russian domestic freight tariffs is also being reformed, with most tariffs rising sharply toward cost-recovery levels, so the overall impact of the tariffs decision on the Baltic states is still unclear. The intent, however, is crystal clear. Russia has also frequently attempted to boost its own road transport sector by refusing sufficient permits to Baltic trucking firms. Moreover, the profitability of the Baltic transportation sector is also at risk from a factor outside the Balts’ or Russians’ control: the world-market prices of oil, gas and other commodities. While relatively high now, a drop in commodity prices would make it unprofitable for Russian companies to export these goods, which would have an immediate effect on the railroads, port systems and hence overall economies in the Baltic states. Baltic transportation firms would be wise to consider a variety of future scenarios when making investment plans.