Raivo Vare: Russian border railway closures linked to RZhD financial shortfall and diesel fuel costs

Estonian economic analyst Raivo Vare believes that Russia's decision to suspend railway connections at multiple border crossing points along the Estonian, Latvian and Finnish borders is linked to both the severe financial situation at RZhD and the desire to redirect cargo flows through Russian ports. The border checkpoint at Petseri-Pihkva on the Estonian border, Põtalovo on the Latvian border, and several Finland border crossing points were closed on 1 July 2026. The analyst also criticised the extremely short notice period, which creates substantial additional costs for freight carriers.

Russia's Prime Minister Mikhail Mishustin signed an order on 30 June 2026 to suspend rail traffic at several border crossing points crossing the Estonian, Latvian and Finnish borders, which came into force on 1 July, just a day later. Estonian economic analyst Raivo Vare explained in an interview with ERR Radio News that the decision is driven by both political and economic reasons.

RZhD financial crisis as the main driving force

According to Vare, the severe financial situation of Russia's railway monopoly RZhD is one of the most important factors. "They have cut their investment programme, reduced costs quite 'brutally' across the entire network and carried out mass redundancies," said the analyst. According to him, old M62-series diesel locomotives, which consume fuel in large quantities, are used in border areas. Servicing international border crossing points requires, in addition to locomotive changes, technical maintenance and the work of border and customs officials, all of which makes these routes expensive for RZhD.

Vare noted that closing these lines would allow the railway company to save costs considerably.

Cargo flows redirected to Russian ports

As a second reason, Vare cited Russia's desire to increase the load on its own ports. The now-closed border crossing points primarily handled cargo that falls outside the sanctions package. After the border crossing points are shut, companies will likely have to use Russian seaports, which will increase their throughput and revenue.

The analyst pointed out that after the changes come into force, railway routes along Russia's western border will be essentially inaccessible, with the only exception being traffic towards Lithuania, which is linked to transit through Kaliningrad Oblast.

A signal to Central Asian countries

In Vare's view, Moscow's decision also carries a geopolitical message. Central Asian countries have actively used these routes for trade with Europe, and Russia is demonstrating that it can restrict alternative logistics routes at any time. This could increase transport costs for both exporters and importers in the region.

However, Vare found that such moves could paradoxically accelerate the development of alternative transport corridors, particularly through the Trans-Caspian route via Azerbaijan.

The notice period also drew criticism

The analyst sharply criticised the extremely short notice period, the order was signed on 30 June and came into force on 1 July. "Usually some time is given anyway, because some cargo is already in transit and quickly rerouting it by rail is very expensive. But when has Russia ever really cared about that?" said Vare.

The closed border crossing points include Petseri-Pihkva on the Estonian border and Põtalovo on the Latvian border, as well as several crossing points on the Russia-Finland border.