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From hardliner Dmitri Medvedev’s wine to raw materials for the arms industry, Russian imports are transiting Latvia in spite of the latter’s hawkish stance towards Moscow. Historically, Riga’s political relations with Moscow have been mostly rocky, and the rhetoric has been sharpened following the large scale invasion of Ukraine. However, while Latvia has been advocating a tougher stance towards Russia, business and economic relations with that country have been preserved.
The numbers reveal business as usual with Russia, in spite of calls to cease dealings
Since Latvia’s independence and the collapse of the Soviet Union, relations with Russia have always been difficult. Due to historical experience, Latvia viewed Russia with suspicion, which gradually grew after the August 2008 invasion of Georgia, the 2014 annexation of Crimea and the start of the war in Ukraine, and especially after February 2022, when Russia launched its full-scale invasion of Ukraine. Accordingly, Latvia's sharp rhetoric and requests to NATO to pay more attention to Latvia's security grew. In Latvia and the Baltic states, one can hear the opinion – if Ukraine falls, then the Baltic States will be the next ones that Russia will turn against.
After February 24, 2022, the rhetoric against Russia became especially sharp, and Latvian companies were invited to stop any cooperation with Russia. These appeals were not always heeded. Businessmen stressed several arguments, for instance, they said that it is very difficult to suddenly stop cooperation without harming the companies.
The data of the Central Statistics Office of Latvia shows that Latvia's export of goods to Russia in 2021 was EUR 1.197 billion. In 2022, it remained in the same, and in 2023 there was a slight decrease, to EUR 1.128 billion. So far this year, by April 22, Latvian exports to Russia amounted to EUR 183.5 million. Russian exports to Latvia had a more abrupt decrease. If in 2022, compared to 2021, exports to Latvia from Russia increased from 1.77 to 1.83 billion EUR, then in 2023 there was a sharp drop, to 606 million EUR. In 2024, by April 22, exports were 108.5 million EUR.
Meanwhile, exports to Central Asian countries such as Kazakhstan and Kyrgyzstan have increased dramatically. It has been said many times that a significant part of these exports eventually end up in Russia. The data show that in 2022, the export from Latvia to Kazakhstan, compared to 2021, increased from 47.7 million EUR to 120 million. Last year, exports increased to 124.5 million EUR. Exports to Kyrgyzstan from Latvia in 2021, 2022 and 2023 increased from 6.6 and 23.9 million EUR to 57.4 million EUR, respectively.
Armands Astukevičs, a researcher at the Eastern European Policy Research Center, admits in a conversation with “Veridica” that Russia uses Kazakhstan and Kyrgyzstan to circumvent sanctions. However, he emphasizes that Latvia is far from being the only country from which exports have increased. For example, car exports from Germany and Great Britain have grown. The researcher points out that there is a more tolerant attitude towards Central Asia, because there is a belief that greater pressure will push them into the arms of Russia. There is a different attitude towards Belarus, which cannot be separated from Russia.
Describing the importance of sanctions for the security of the Baltic States, Astukevičs points out that the goal is to weaken the Russian economy, which is currently adapted to the needs of war. “It is in our strategic interest to weaken the Russian economy. We are more interested in making these sanctions work,” Astukevičs states. Sanctions also play a role in internal security. For example, Russia's energy role in Latvia has disappeared, partially also in the financial sector, while the ties in logistics are still strong.
Russian grains for Europe, manganese ore for Russia’s arms industry and wine for Dmitri Medvedev
It is estimated that around 400 000 tons of grain were exported through Latvia from Russia to EU countries. Additionally, there are unknown amount of grains that ended up out of EU. Russian grain does not violate sanctions or other laws. Grain exports were not included in the sanctions for humanitarian reasons. There were fears that the ban would create a food crisis and potential famine in the world's poor countries. This factor was mentioned as an argument by Latvian Minister of Agriculture Armands Krauze in December 2023. He referred to the views and policies of the United Nations and other international organizations. According to him, it is possible to talk about restricting grain imports to the EU, where there is no shortage of food, but not to other regions. However, the largest Latvian grain-growing cooperative “Latraps” called on the government to stop any import and transit of grain with Russia, including to third countries. “Latraps” stated that this is a moral decision and indicated that, in general, only two to four companies import grain from Russia.
Following months of talks, the Latvian government agreed to ban the import of Russian and Belorussian grain to Latvia. A grain transit ban was not possible, as it would be contrary to international norms. It is estimated that the import ban will cost Latvia about 100 million per year.
An even louder scandal in Latvia developed around the transit of manganese ore through Latvia and Estonia to Russia. The transit of this raw material is particularly sensitive, as manganese ore is used to produce high-quality steel used in the manufacture of gun barrels, armored vehicles and their tracks. In other words, the transit of manganese ore directly strengthened Russia's military industry, which is currently targeting Ukraine.
Estonian newspaper “Postimees” wrote that in 2023 almost 90% of exported manganese ore to Russia was unloaded in three Latvian and Estonian ports: Riga and Ventspils in Latvia, as well as the port of Sillamė in Estonia. The manganese ore is then transported by train to Russia. The media reported that when the invasion began in 2022, the demand for manganese ore increased. The countries of origin of this raw material are mainly the Republic of South Africa, Gabon, Ivory Coast and Brazil. According to what was published by “Postimees”, the manganese ore was delivered to the factory in Chelyabinsk. The company “Silsteve”, partly owned by former Estonian Prime Minister Tiit Vähi, also participated in the transit.
Latvian businessmen state that it is not known whether the ore transported through Latvia ends up in the Russian military industry, as there is no reliable data. Also, Latvian businessmen do not always have a direct contract with Russia, and cargo is mostly regulated by large US and European corporations. In turn, the Latvian Customs Administration informed that the list of sanctions includes several other metals that may not be brought to Russia, as they can be used in the military industry, such as manganese oxides, aluminum hydroxide and other chemical compounds. In the first two years of the “big war”, Latvian customs officers found only one prohibited cargo, which was sent back.
At the same time, Latvian businessmen point out that if there’s a gap in the sanctions, businesses would exploit it thinking that everything is legal. The transit of raw materials is checked by a number of entrepreneurs and institutions, and manganese ore cannot simply be exported and go unnoticed.
Since February 24, 2022, the transit of manganese ore has grown three times. The volume of other chemical cargoes has also increased, and military experts say that this type of raw material is needed in the military industry. However, the importance of raw materials should not be exaggerated either, because military technology is even more important in wartime.
Discussions were also caused by the news that the production of an Italian winery owned by Medvedev was also transported through Latvia. Almost all European alcohol exports to Russia were through Latvia and Lithuania. According to European sanctions, alcohol that costs more than 300 euros per bottle cannot be brought to Russia, but everything else can be traded without restrictions. According to the scheme, the logistics company operated in Latvia, while in Russia - the company “Rue de Vin” that is connected to Medvedev's confidant Ilya Yeliseev. Sanctions have been slapped on Yeliseev in the USA, Great Britain, Ukraine, but not in the EU.
Although holes can be found in the sanctions policy from time to time, they still make sense, says Astukevičs. If there were no sanctions, the Russian economy would be stronger. Moreover, with regard to the coming years, optimism in Russia is not so great. “I wouldn't underestimate our effort,” Astukevičs said.
Evaluating individual cases, Astukevičs admits that Latvia found itself in a morally dubious situation because Ukraine could not export its grain. But the case of manganese ore was more serious. “Here is a question about the capacity of sanctions control. It could not go unnoticed by the companies that dealt with it. Here is a question about how we work together in Latvia. We got justified criticism there,” he says. At the same time, he emphasizes that sanctions will always be a “cat-and-mouse” game. While Latvia and Europe will try to strengthen sanctions, Russia will search the ways how to avoid them.
Russia's influence in Latvia's economy is decreasing
Attention to Latvian companies that continue to cooperate with Russia is so great that state institutions even published a list of such companies. In mid-March 2023, there were 143 of them, which is significantly less than in December 2022, when there were 350. Logistics companies are represented the most – 50. However, there are also companies of metalworking, construction material production, food production and other fields.
Although Latvian politicians are anxiously looking at the toughening of sanctions, worrying about the negative impact on the economy, experts point out that Latvia’s economic ties to Russia have been gradually shrinking for years. For example, in 2015, 50 million tons of cargo was transported by rail to Russia, and in 2023 – 15 million. Between 2014 and 2021, transit with Russia and Belarus decreased by 60%.
At the end of March, 45.5% of the population of Latvia admitted that sanctions against Russia should be extended, even if it harms the well-being of the population. Almost as many 41.6% said that if the sanctions harm the well-being of Latvian citizens, then they should not be extended. The population aged 18 to 24 and those with high incomes supported the expansion of sanctions the most, while those who spoke Russian in the family and had only primary education did not agree. In this sense, Astukevičs points out that the decline in welfare is caused more by the war itself than by sanctions.
The researcher welcomes the call of the Bank of Latvia to stop cooperation with Russia altogether. He points out that only 3% of Latvia's exports go to Russia. “There are no systemic risks and losses when ceasing cooperation with Russia. Yes, there would be short-term losses. But it is not like in 2014, when dependence on Russia was more important. We have greatly, greatly reduced this dependence,” Astukevičs explains. It is necessary to have more courage in refusing to cooperate with Russia, before developing a concrete plan on how to do so. At the same time, there are industries that are still closely connected with Russia, for example, pharmacy and transit. The situation can be particularly acute in the transit sector. If the cooperation with Russia is stopped, then there is the question of how to maintain the infrastructure of the railway and partly also the ports, which will no longer have economic justification.
Astukevičs, says that, in general, Latvia's actions and situation in the context of sanctions can be evaluated positively. “We are much more critical of ourselves than the West is of us” the expert concludes.
