How Latvia became the whisky hookup for sanction-hit Russia

Latvia, one of the European Union's smallest member states with a population of fewer than 2 million, has emerged as the number-one supplier of whisky to its heavily sanctioned neighbor Russia.

In the first nine months of last year, Russia imported almost €244 million ($266 million) worth of the amber-colored spirit.

Of that total, almost three-quarters came from Latvia, according to figures published by the Russian news agency RIA Novosti. In second place came another Baltic country, Lithuania, which sold Russia €27 million worth of whisky.

Latvia, which has a frigid climate and produces negligible amounts of wine compared to viticulture heavyweights, also overtook the world's largest producer, Italy, to become Russia's premier supplier. Italy sold Russia €68 million worth of wine last year, while Latvia exported €73 million worth.

According to the Latvian government's official statistics portal, the country's exports to Russia were worth more than €1.1 billion last year, with more than half of that being drinks, spirits and vinegar.

Same supply chains, different paper trail

Of course, Latvia and Lithuania haven't transformed overnight into major wine and whisky producers. A large share of the alcoholic drinks being shipped to Russia from Latvia are, in fact, being sold by Western European companies that are registered in Latvia.

"There seem to be some larger companies from Western European countries that simply use Latvia as a kind of distribution center," Matiss Mirosnikovs, an economist at the Bank of Latvia, told DW. "So it's not necessarily about production by Latvian industry, but about re-exports."

Veniamin Grabar, head of the Russian spirits import company Ladoga Group, confirmed this in comments to RIA Novosti. "While documents used to say that imports to Russia simply went through Latvia or Lithuania, now the Baltic states appear as the destination of the export, " he told the news agency. "Deliveries to Russia are then made from there."

Not much has changed in terms of actual supply chains, according to the two experts. The same producers are selling to Russia. The only difference is that Latvia is now listed as the country of destination. Companies in the Baltic state then handle the exports to Russia, including the related customs paperwork.

Western companies wary of reputational damage

Strictly speaking, these exports do not violate the EU sanctions imposed on Russia after its   full-scale invasion of Ukraine two years ago. But clearly, the fact that many Western European companies feel the need to use Latvia as a sort of distribution center shows they are concerned about their image, Mirosnikovs argues.

For some companies, their survival is at stake. "Certain firms only have Russia and Belarus as customers. So they don't want to, and actually cannot simply halt trade," the economist said.

There is still the ethical question of trading with Russia as it wages war with Ukraine. The London-based Moral Rating Agency, for example, was created following Russia's invasion of Ukraine to track whether companies were adhering to their pledges of leaving the country. 

According to them, French company Pernod Ricard, known for brands such as Absolut vodka and Jameson Irish whisky, is one of the largest suppliers of alcoholic beverages to Russia.

Russian media have reported that Pernod Ricard is planning to wind down its business with the country. But the French group said in a press release it would still require several months to do so and that Russian employees would still be paid in the meantime. Pernod Ricard did not respond to DW's request for comment. Neither did other companies selling spirits to Russia.

Moral qualms

Since the start of the war, Latvia and Lithuania have been among Kyiv's closest backers. That's what makes the roaring booze trade all the more surprising. For some, it is a difficult square to circle.

Davis Vitols, head of the Latvian Alcohol Industry Association LANA, put forward an unusual argument justifying sales: "Alcohol is perhaps really the one product that can still be sold because it is harmful to health if consumed in excess," he said on Latvian television, stressing this was his own view and not that of the association.

Mirosnikovs told DW there were two ways of looking at things: "On the one hand, it is good to receive money from Russia because then they can spend less money on military purposes. On the other hand, it allows the elites to do what they want, namely to lead as normal a life as possible, so they don't want to push for any change."

Is booze the blind spot of the Baltics' line on Russia?

The increasing trade in spirits with Russia stands in stark contrast to the Baltic countries' policy in general. Latvia, Lithuania and Estonia, which were all formerly part of the Soviet Union and have significant Russian-speaking minorities, have pushed hard for sanctions within the EU.

Long before the war, they were warning other EU states about the potential for Russian President Vladimir Putin to become increasingly aggressive.

Estonia and Latvia are also turning away from the Russian language: Education should now only take place in the respective national languages. Anyone wishing to live in Latvia with a Russian passport, even if they have spent their entire life there, must now reach a minimum basic level of Latvian or face deportation.

Does it make sense to crack down on Russia and Russian culture but keep selling and profiting from booze exports? The Latvian Ministry of Agriculture declined DW's request for an interview, citing time constraints.

Former Latvian economic minister Ilze Indriksone told local media that the government had long called on companies to stop trading with Russia and Belarus. 

"We have also discussed physically closing the border and preventing land-based transportation," she said. "But if we close the border and none of the other countries bordering Russia and Belarus do, it won't achieve anything."

This article was translated from German.