The Russian government has decided to temporarily suspend the movement of people, vehicles, goods and freight through several rail border crossings on its borders with Finland, Estonia and Latvia starting July 1. In Estonia's direction, traffic has been halted at Pechory, meaning freight can no longer pass through the Koidula border crossing.

There are likely several reasons behind the Russian government's decision to suspend westbound rail traffic, Vare said.

"It is clearly intended as a signal. 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 favoring Russian ports, because goods that are not under sanctions, as well as Central Asian cargo, can instead be routed through Russian ports," Vare said.

He added that cargo volumes at Russian ports have dropped sharply following Ukrainian drone attacks.

A second likely reason for the decision is the financial difficulties facing Russian Railways (RZD), Vare said.

"RZD is facing a major funding shortfall. The company is suffering enormous losses, has scaled back its investment program, cut costs and laid off employees. It 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 said.

"RZD stands to benefit the most from this, while at the same time the move sends the message that 'we don't need you on the other side of the border,'" he added.

Vare said it remains unclear why the Russian government implemented the decision so quickly.

"What concerns me is that they did it overnight. They signed the decree yesterday (Tuesday — ed.) and it took effect today. Normally, there is at least some transition period because some shipments are already in transit. Rerouting freight by rail is very expensive and it disrupts the delivery plans of many companies," he said.

Because trains traveling from the east can still reach Lithuania via Belarus, Klaipėda remains the region's only port where cargo bound for eastern destinations can be transferred. Russian and Belarusian fertilizers, for which global demand is currently very high, also pass through the port, Vare said, adding that Russia is also compelled to take a more accommodating approach toward Lithuania because of transport links to Kaliningrad.

The decision also sends a message to Central Asian countries whose goods move west through Russia: route your cargo through Russian ports instead, Vare said.

"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. 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," Vare said.

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