what sancations?

Russian railways play key part in boosting the country's economy in the face of increasingly ineffectual sanctions

BY JONATHAN WEBB

When the West imposed sanctions on Russia, following the start of the Ukraine war, it supposed that it would bring the country to its knees – instead it has sought out new markets – boosting its economy while western residents face crippling energy bills and a reduction in the standard of living.

Politically, Western governments are known to be uneasy about continuing to pump money into the conflict for fear that it will damage them at the polls.

This is especially evident in America, where there has been a rapid decrease in support among republicans.

Russia's defiance would not be possible without the aid of its rail freight network. Last year, eastbound rail shipments exceeded westbound shipments for the first time – with some 80 million tonnes heading east compared to 76 million tonnes heading west.

The figures being revealed by Russian Railways chairman Oleg Belozerov during a meeting with Russian President Vladimir Putin.

Such figures should come as no surprise, least of all to the European Union which has reduced Russian access to its markets – it does, however, illustrate just how much much Russia has pivoted towards Asia in only 12 months.

This in itself is a remarkable achievement.

This transformation has been made possible by the Trans-Siberian and Trans-Mongolian rail networks, which span from European Russia to the Russian Far

East port of Vladivostock and via the Mongolia spur, to China.

Trans-Siberian Rail Export Hub

The China-Russia increase in trade is no secret, but is often dismissed as being purely energy related. In reality, there has been a significant upsurge in China's non-energy trade with Russia too.

This has been particularly noticeable in the areas of agriculture, automobiles, plus raw materials such as metal ores and timber – which China needs to supply its ever-hungry and diverse manufacturing base.

The export of unfinished goods from Russia's Far Eastern Federal District to China, accounts for 91% of exports. Without this supply of Russian origin energy and ores, China would not be able to maintain its impressive production rates and this would in turn impact on the export of finished goods across the globe – including those western countries that have imposes sanctions on Russia.

2023 has already seen an increase in imports to China from Russia – the International Moneytry Fund believes that China and India will be this year's primary global drivers – adding significant freight traffic to the Russian rail network, which is linked with China at various points and new bridges.

In January this year Russia reported a 210% in crease in the export of soya to China – a commodity that is expected to see further increases this year.

The Vladivostock Maritime Export Hub

This massive seaport located on Russia's east coast has become of pivotal importance in boosting the Russian economy – being responsible for an ever increasing amount of trade with South Asia.

Regarded as a vital part of the Asian supply chain, Vladivostok is well connected by rail to vast swathes of Russia's heartland. Food products in particular have seen an upward trend in both imports and exports via the seaport. Imports of Vietnamese seafood have rocketed, as has the export of Russian pork to China.

Such is the demand for Russian goods in China, direct shipping services now operate between Vladivostok and Ho Chi Minh City. Vladivostok's excellent rail connections mean that Russian companies from across the country can reach the seaport relatively easily –opening up access to Asia's booming economy.

India is also proving to be a valuable trading partner with Russia, with Russia rising from 25th to 7th place in 2022 in relation to India's most significant trading partners – with it importing large volumes of Russian raw materials, vital for its ever growing economy. In addition to importing metal ores and timber, India is also a major buyer of Russian wheat.

Such a boom in business has led to plans to create additional warehouse facilities at the seaport. This is as a direct result of Russian freight flows pivoting from supplying Europe to supplying Asia.

In a separate move, Russia's railway operators are making robust strides to increase freight traffic using a new RZD Logistics service that travels along the 7200 km (4500 miles) International North South Transport Corridor (INSTC) through Turkmenistan, Kazakhstan and Iran from Moscow's Agrohub terminal.

RZD Logistics CEO Dmitriy Murev said: “We have been successfully cooperating with this terminal [Agrohub] for several years. It has proved a reliable and effective platform for enhancing exports from Moscow, and in the reverse direction. We have no doubts regarding the prospects of a new route via the INSTC, because of the increasing role of this corridor.”

First Beijing to Moscow freight service

A further boost to Russia's economy came on 16 March when the first freight train departed between Beijing and Moscow. This marked the start of a new service of the China-Europe Railway Express, connecting the capitals of the befriended countries.

The train consisted of 55 40 foot containers, departing China at the Manzhouli border crossing, where it entered Russia and travelled to the country's capital. Goods on the train included car parts, building materials, home appliances, clothing and home furnishing. Trains take approximately 18 days to make the 5500 mile (8850 km) journey.

Post pandemic Russian railways was the natural choice for European companies wanting to send goods to Asia – especially as the pandemic had put pressure on shipping capacity and forced container prices to record highs. Shorter transit times, compared to sea, was also another advantage.

The Ukraine war put an end to such traffic almost overnight – with European businesses that want to use rail facing increased insurance premiums and the risk that their goods may be confiscated. "The insurers fear they wouldn't be able to enforce claims if loads are damaged or lost while in Russia.” according to Julia Pfeil, a partner at the Frankfurt office of the Dentons law firm.