The ongoing Red Sea crisis has led to an unexpected beneficiary: Vladimir Putin's Russia. As Houthi rebel attacks disrupt maritime routes, freight companies are increasingly turning to Russian railways for transporting goods between China and Europe, effectively circumventing Western sanctions.
The Eurasian Rail Alliance (Era), a Russian freight company utilizing Russian rail lines, has experienced a significant uptick in transport volume. In the first half of 2024, Era moved 163,000 twenty-foot equivalent units (TEUs) of goods between China and Europe, marking a 121% increase compared to the same period in 2023. This surge has nearly restored transport volumes to pre-war levels, despite a 61% plunge following Russia's invasion of Ukraine.
Simon Johnson, an MIT professor and former IMF chief economist, commented on the situation:
"This is definitely a source of revenue for the Kremlin. It looks like another case of the EU declining to incur costs and therefore only encouraging Russian aggression."
[[Simon Johnson, MIT professor and former IMF chief economist]]
The Russian Railways (RZD), a state-owned enterprise with a near-monopoly on the country's rail lines, stands to benefit significantly from this shift. As the third-largest rail network globally, after the US and China, RZD employs over 700,000 people, making it one of Russia's largest employers.
While maritime shipping still dominates global trade, with the International Maritime Organization estimating that over 80% of global trade by volume is carried by sea, the current crisis has highlighted a loophole in Western sanctions. There are no restrictions on goods transiting through Russia by rail, provided they remain in continuous travel.
Some companies that previously halted Russian route usage are now reversing their policies. Denmark-based Blue Water Shipping, founded in 1972, resumed transits through Russia in February 2024, citing the need for alternative routes due to Red Sea disruptions.
The Red Sea crisis, which began in late 2023 following Hamas attacks on Israel, has seen Iran-backed Houthi rebels in Yemen targeting ships in the vital waterway. The Suez Canal, which opened in 1869 and handles about 12% of global trade, has become a focal point of these attacks. A recent incident on August 18, 2024, where militants hit a Greek oil tanker, has further escalated concerns.
Rail transport from China to Europe takes approximately 18 days, compared to the average 55-day sea journey. This efficiency, coupled with the current maritime risks, has made rail an increasingly attractive option for many companies.
The Trans-Caspian International Transport Route, established in 2013, offers an alternative that bypasses Russia. However, it requires a ferry crossing, making it slower than the Russian routes. This situation underscores the complex interplay between geopolitics, economics, and logistics in the current global trade landscape.
As the situation evolves, it remains to be seen how Western nations will address this unintended consequence of the Red Sea crisis, which appears to be inadvertently supporting the Russian economy despite ongoing sanctions.