The European Union’s (E.U.) latest sanctions aimed at punishing Belarusian President Alexander Lukashenko and his regime will have limited impact and will leave the regime able to continue financing the economy and security forces, according to a report by Canada’s National Post, citing rating agencies and analysts.
The E.U. on June 24 agreed to a sweeping set of sanctions against the Belarusian regime, targeting key economic sectors, and include restrictions on Belarus’ potash trade (GM June 25, p. 1).The measures, which came into force on June 25, follow the forced landing of a Ryanair flight and the arrest of journalist Raman Pratasevich and his girlfriend in Minsk on May 23 (GM May 28, p. 1), as well as what the E.U. bloc called “the escalation of serious human rights violations” and “violent repression” in Belarus.
State-owned potash producer Belaruskali and potash marketer and exporter Belarusian Potash Co. (BPC) also look to face no major threat from the latest E.U. sanctions as they currently stand. Belarus potash exports account for around 20 percent of the global trade in the nutrient, and according to the country’s National Statistical Service (Belstat), earned the Belarusian regime some $2.41 billion last year.
Crucially, while the sanctions restrict imports of Belarus potash into E.U. countries and a transit ban via E.U countries, as well as imports of Belarus NPK fertilizers (and other fertilizers containing potassium and phosphorus), a key grade of Belarusian potash has been excluded from the ban. Potassium chloride with a potassium content evaluated as K2O by weight, exceeding 40 percent but not exceeding 60 percent on the dry anhydrous product, is not included on the sanctions list.
Additionally, Belarus’ current supply contracts with India and China are not subject to the Brussels sanctions. Under the E.U. measures, the execution of any of BPC’s potash supply contracts concluded before June 25, the day the sanctions came into effect, can continue without restriction.
Belarus rails most of its potash for export to the Lithuanian port of Klaipeda, and because the new sanctions also include a transit ban via E.U countries, had all grades of potash been included in the E.U. restrictions, the impact on the Belarus economy would have been far-reaching.
As the E.U. measures stand, they will lead to about a 20 percent drop in the volume of Belarus potash and other fertilizers transported via Lithuania, according to Lithuanian state-owned railway company Lietuvos Geležinkeliai’s (LG) CEO Mantas Bartuska, speaking to the press on June 25 and cited by Lithuania’s main news portal, Delfi.
According to Bartuska, about 11 million mt of Belarus potash crossed the Lithuanian border last year, with about 2.5 million mt now falling under E.U. sanctions. The CEO warned that the loss of these cargo volumes would amount to around €14 million a year in lost revenues for the rail company. LG is also set to be impacted by the loss of revenue from Belarusian oil product cargo volumes, which are included in the E.U. sanction restrictions.
According to Bartuska, the Klaipeda port shipped almost 10.7 million mt of Belarus potash last year via the Biriu Kroviniu Terminalas (Bulk Cargo Terminal [BKT]) terminal, in which Belaruskali owns a 30 percent stake.
Belarus exported 1.07 million mt of NPK fertilizers in 2020, of which 429,200 mt went to E.U. countries, according to an Interfax report, citing the country’s National Statistics Service (Belstat), or around 40 percent of the total (GM Feb. 19, p. 20). Some 611,600 mt went to Ukraine.
Each sanctions measure needs to be seen in a wider context of all existing sanctions and their direct and indirect impact, Peter Stano, the European Commission’s Lead Spokesperson for Foreign Affairs and Security Policy, told Green Markets, in response to enquiries by GM as to why the E.U. decided not to restrict all Belarusian export trade in potassium chloride into Member countries.
“The overall sanctions the E.U. adopted vis-a-vis Belarus are extremely comprehensive, consisting of asset freezes against 15 entities, asset freezes and travel bans against 166 individuals, and economic sanctions targeting specific sectors of the Belarusian economy that we believe will hit the Lukashenko regime the hardest,” he said.
“As Josep Borrell, E.U. High Representative for Foreign Affairs and Security Policy and Vice-President of the Commission (HR/VP) stressed, the E.U. Member States would not be adopting these sanctions if we did not believe that they could have the desired effect, which is to contribute to bringing an end to the violent repression of the Belarusian people, the release of all political prisoners, the respect for democracy, the rule of law and human rights, and promote an inclusive national dialogue leading to free and fair elections under the supervision of the OSCE,” said Stano.
He added that current sanctions are not the end of the story, and the E.U. will continue to assess the situation on the ground in order to determine whether further E.U. measures are warranted.
According to unnamed sources cited by a report in the U.K.’s Guardian newspaper, some E.U. member states feared cutting off Belarusian potash supplies too quickly would hurt European farmers, while others were concerned about boosting the Russian potash industry.
Belarus supplies about 25 percent of Europe’s potash demand, according to BPC. BPC’s press secretary told Bloomberg in May that while sanctions preventing European companies from trading with Belarus may cause a short-term increase in potash prices in Europe, she believed the situation would normalize fairly quickly as the shortfall may be filled by producers such as Russia’s Uralkali.
The Mosaic Co. President and CEO Joc O’Rourke, presenting at the Exane BNP Paribas 23rd European CEO Virtual Conference on June 7, thought Uralkali and EuroChem would fill part of the supply shortfall, and the rest would be filled by ICL and maybe Jordanian potash. But he believed there is enough potash out there for the European market in the event of sanctions prohibiting Belarus potash coming into the E.U.
But under the trade sanctions put in place by the E.U. last week, the prohibited grades of potash account for only around 20 percent of Belarus’ supplies to the E.U., according to a note last week by Russia’s VTB Capital analyst Elena Sakhnova, cited by Bloomberg.
But Franak Viačorka, Belarus opposition politician and advisor to Belarusian opposition leader Sviatlana Tsikhanouskaya, has called on the E.U. to “close loopholes” in the sanctions, according to the Guardian report. He said only full, comprehensive sanctions will cause Lukashenko to change his behavior. “Semi-sanctions or half-measures only will harm,” he said.
Viačorka has also criticized the E.U. for not applying sanctions retroactively, pointing to the potash supply contracts Belarus signed before June 25 being able to continue.
The Belarus government for its part has downplayed the Western sanctions targeting its potash export trade. Belarus Deputy Prime Minister Alyaksandr Subotsin said Belarus would now redirect part of the country’s potash trade to Russian and Chinese markets, as well to “the East,” BBC Monitoring reported, citing Belarus state-owned Belarus 24 TV’s Main Broadcast news program.
His comments echoed comments in May by BPC, which said in the event of sanctions preventing European companies from trading with the Belarus potash industry, Belarus could still be able to divert potash volumes from Europe to other markets, primarily Asia.
Belarus state-run news agency BelTA this week reported that Belaruskali Director General Ivan Golovaty, “feels inspired by the difficulties” in the “current complicated conditions.”
The new E.U. sanction measures also restrict access to E.U. capital markets, banning E.U. operators from new Belarusian state debt, including loans and bonds issued after June 29 with a maturity of more than 90 days. The European Investment Bank is also to cease any payments under existing agreements with the Belarusian public sector.
However, the sanctions do not affect the state-owned Development Bank of Belarus, the only bank with outstanding Euro bonds, according to the National Post report.
The Belarus government also has strong financial support from close ally Russia, according to the S&P ratings agency. Minsk and Russia agreed to a $1 billion credit line with Russia last year, extended when Lukashenko was facing widespread national protests following his disputed re-election, to help refinance $1.1 billion in foreign currency debt, which is due for repayment by the end of 2021, the National Post reported, citing the ratings agency.
Russia’s ambassador to Belarus Yevgeny Lukyanov told media in June that Russia will continue to support Belarus, including in case the E.U. and other countries impose additional sanctions, adding that foreign trade contacts between Belarus and Russia “would be adjusted taking into account the impact of [any] sanctions”.
Russian President Vladimir Putin has voiced solidarity with Belarus in its resistance to “illegitimate Western sanctions,” Tass reported, citing the Kremlin’s press-service this week.
The two countries are to set up a joint business council, BelTA reported this week, citing the Belarusian Chamber of Commerce and Industry Chairman Vladimir Ulakhovich at a web-based meeting of the Business Cooperation Council on June 30, where an agreement was signed. The joint council will include major enterprises from different sectors of the economy.
In retaliation to the European bloc’s sanctions, Belarus’ Foreign Ministry said on June 28 Belarus would move to suspend a readmission agreement with the E.U. that is aimed to stem illegal migration, AP reported. The ministry also said Belarus will impose a travel ban on unspecified E.U. officials involved in the drafting of the sanctions, will recall its envoy to the E.U. for consultation, and will also ask the E.U. representative in Minsk to leave the country.
According to the report, Belarus will also suspend its participation in the E.U.’s Eastern Partnership program, which was intended to strengthen cooperation with several FSU countries.
In further retaliatory moves, Belarus on June 30 ordered two German educational organizations to cease activities in the country. The Goethe Institut, which promotes German language and culture worldwide, and the German Academic Exchange Service were ordered to shut their Belarus operations.
In the meantime, jailed journalist Raman Pratasevich and his girlfriend late last week were reported to have been moved from the prisons where they were being held to house arrest amid calls by the opposition and rights activists for their immediate release, but Pratasevich still faces up to 15 years in jail on claims by the Belarusian regime he was behind so-called “civil disturbances” following the disputed presidential election last August.