The date for the halting of Belarus’ ability to rail its potash exports through Lithuania is fast approaching, and it is looking increasingly problematic for state-owned potash producer Belaruskali OAO and its potash marketing/exporting arm Belarusian Potash Co. (BPC) to set up new transit routes in the near future.
Most of Belarusian potash exports – some 10.7 million mt out of a total of 11.8 million mt in 2020 – are railed via Lithuania’s rail system for onward shipment from the Lithuanian port of Klaipėda. Last week, the Lithuanian government finally reached a decision to end the railway contract between the country’s state-owned railway company Lietuvos Geležinkeliai’s (LTG) and Belaruskali over national security concerns (GM Jan. 14, p. 1). The end of that contract for Belarusian potash transit is set to become effective Feb. 1.
Belarus had signalled earlier it could opt to redirect its potash for transit via Russian ports, including the Russian Baltic port of Ust-Luga and the port of Murmansk. According to Belarus Minister of Transport and Communications Aleksei Avramenko, as cited by a BelTA news agency report last August, the routes for potash transit via Russian ports have been worked out.
But is unclear whether there is spare transhipment capacity at Russian ports for additional potash transhipment. Some industry sources think there currently is not. Furthermore, it is likely Russian potash producers would want “first dibs” on what spare or new potash transhipment capacity there is.
Last week, Kremlin spokesperson Dmitry Peskov, responding to journalists’ questions whether Russia is prepared to transport potash from Belarus, said “it is a sensitive issue,” and refrained from giving a definitive answer, according to reports by Interfax and Russia’s Tass. But the spokesperson also said that Russia “will not abandon its partner.”
A re-direction of Belarus potash exports via Ukraine, with which Belarus shares a border, and through Ukrainian ports, appears unlikely, given the current heighted geopolitical tensions and Ukraine’s current need to keep both the E.U. and the U.S. on its side.
Latvia, which also shares a border with Belarus, has said it will not take over the transport of Belarusian potash when deliveries via Lithuanian railways cease on Feb. 1.
Latvia’s Transport Ministry, as well as private Latvian freight forwarders and the Latvian railway companies contacted by the Baltic News Service (BNS), said at present Belarus does not transit potash and fertilizers through the country and that “there is no basis for this in the future.”
They said Latvia, which like Lithuania is a European Member State, adheres to international sanctions and does not want to violate them, according to the BNS report.
There is some speculation that Belarus may try to supply potash to China by rail. There is a China-Europe Railway Express that links Belarus with China, but it is unclear how viable this is and whether there is much in the way of additional trains and capacity available.
Furthermore, the rail line passes through Lithuania, and reports have indicated trains have not been stopping in the country for the past several weeks due to tensions between China and Lithuania.
China sourced some 16 percent of its potassium chloride imports from Belarus in 2020, importing a total of 1.38 million mt of Belarusian potash, according to Trade Data Monitor (TDM). In 2021, Belarus’s share of China’s potash import trade increased to 23 percent, or some 1.75 million mt, but this was partially accounted for by a lower overall volume of potash imports by China last year (2021: 7.67 million mt; 2020: 8.83 million mt, according to TDM).
Any disruption to this trade flow threatens China’s food security, something that would be unacceptable to China’s leaders.
The current annual supply contract between Belarus and the Consortium of Chinese Buyers (Sinochem, CNAMPGC, and CNOOC), agreed to in February 2021, expired in December.
Last week, Lukashenko and China’s President Xi Jinping, in a telephone conversation marking 30 years of bilateral contact between the two countries, praised the development of future bilateral cooperation, according to a BNS report.
According to the report, “the stable operation and sustainable development” of the China-Europe Railway Express, was part of the discussions.
China is the largest global buyer of potash able to finance trade with a U.S.-sanctioned company,” Green Markets Research Director Alexis Maxwell said last week. “That means Beijing is in a better negotiating position and is able to leverage a Belarus contract for less than the Southeast Asian spot market price.”
However, according to an article this week by Belarus pro-democracy and pro-human rights news site Charter97, citing the Academic Director of the Belarusian Economic Research and Educational centre BEROC, Katsiaryna Barnukova, speaking with Minsk-based Myfin.by, Belarus may stand to lose about $2 to $3 billion of foreign exchange earnings this year due to Lithuania’s transit ban and problems with setting up new supply routes during this year.
Potash accounts for more than 70 percent of the country’s export income. Barnukova speculated that about 80 percent of Belarus’ revenues from potash exports could be lost this year.
The sanctions against Belarus’ potash industry may push Belarus deeper into Russia’s embrace.
“Lukashenko is being strangled” by U.S. sanctions, said Tatiana Stanovaya, a political consultant and founder of R.Politik, as cited by a Bloomberg report. Russian President Vladimir Putin “will use the situation to bind Lukashenko even more closely to Russia,” she said.
While the Belarus leader has not yet asked Russia for support, the Kremlin expects Lukashenko to make an approach for help with budget shortfalls caused by the sanctions on potash sales, according to the Bloomberg report, citing senior Russian officials with knowledge of the situation. Any assistance is likely to be limited, they said.
Kiev, Ukraine-based Belarusian political analyst Artyom Shraibman, according to the report, believes Belarus will likely try to beat the sanctions by re-directing potash sales through Russia as the only viable channel for exports. Russia may offer to buy supplies at below-the-market price and re-sell it as Russian potash, or consume Belarusian potash in its domestic market while exporting more of its own production, he said.
Meanwhile, Russia said this week it will move forces to Belarus for military drills in February, amid the deepening confrontation with the U.S. and Europe over Ukraine. Russia and Belarus have formed a so-called Union State to coordinate economic and defense policies, according to a Bloomberg report. Lukashenko was cited by the report as saying the joint drills would “practice confrontation” with the Baltic countries, Poland, and Ukraine.