Belarus's president of 27 years, Aleksander Lukashenko, is costing Russia about 2-3 billion US dollars a year, based on Tadeusz Giczan, the editor-in-chief Nexta, a Belarusian opposition Telegram channel.
The Kremlin, he notes, has to date been willing to spend the money for price. But if that cost were to increase to 10 billion US dollars – a possible side-effect of beefed-up EU sanctions – it might start to reconsider.
State capture is hardly novel for the Kremlin, however this time could constitute an improvement trap for Belarus, Anders Aslund, a senior fellow at the Atlantic Council in Washington, argues in his recent book Russia's Crony Capitalism: The road from Market Economy to Kleptocracy.
In 2011, large Russian companies made their first attempt to buy up Belarus's key companies, much as they have captured the Armenia economy, but did not fully succeed. Gazprom bought the Belarusian gas company and the 1 / 2 of a corner pipeline it did not already own. Slavneft, controlled by Russian state company Rosneft, took over 42.5 percent of the Mozyr oil refinery.
Today, Lukashenka has fewer options, no EU support and Russia's tentacles tend to be more tightly gripped around Minsk.
Russian oligarch Mikhail Gutseriev, for example, is really a major player in the Belarusian oil refining industry, while three Russian state banks, Sberbank, VTB, and Gazprombank, play important roles within the Belarusian banking system.
Russian chemical producer Uralkhem, owned by the Belarusian-born Russian citizen Dmitri Mazepin, is reportedly attempting to acquire the Belarusian chemical and fertiliser company Hrodna Azot, which ranks is Belarus's fourth largest exporter.
Russia's potash giant Uralkali is eyeing Belarusian Belaruskali, the biggest potash producer on the planet. Uralkali has been a major rival to Belaruskali, and could walk into the Belarusian producer’s shoes if it is main export method is sanctioned.
Uralkali has reportedly long wanted Belaruskali. This year, Lukashenko reportedly claimed he had been offered five billion $ $ $ $ in kickbacks by unidentified “Moscow oligarchs” if he decided to sell the state-run company for 10 billion US dollars.
Together, the Mozyr and Naftan oil refineries, Belaruskali, and Hrodno Azot take into account two-thirds of Belarus's exports towards the West.
EU sanctions
The EU approved sanctions last week targeting industries that finance the Belarusian regime. EU officials said the sanctions are among the toughest it's ever imposed, focusing on seven sectors, including Belarus’s lucrative tobacco-processing business; petroleum; finance; and the import of arms and surveillance technology that could be used against anti-government protesters.
But none will feel the pinch of Brussels’ sanctions a lot more than Belarus’s biggest export, potash fertiliser.
“The key word, I believe, is potash,” says Jean Asselborn, the foreign minister of Luxembourg. “We realize that Belarus produces greatly potash – it's one of the biggest suppliers globally – and i believe it would hurt Lukashenko greatly when we managed something in this region.”
But EU firms need Belarusian potash and damaging Belarusian potash exports will benefit Russian companies. EU member state Lithuania's port of Klaipeda would also likely suffer.
Aslund believes sanctions against Belarus alone is going to be ineffective. Sanctioning large Belarusian state-controlled companies, without at the same time also targeting their Russian interlocutors, risks pushing them into the arms of Kremlin-linked companies.
Loopholes
The dilemma is manifest in the sanctions’ loopholes. European businesses that signed contracts to import Belarusian potash before June 25, your day the sanctions were agreed, can continue to achieve this.
Belarusian opposition leader Svetlana Tikhanovskaya has called around the EU to “close the loopholes”.
The EU composed about eight percent of Belaruskali's sales in 2022.
Belarus Potash Company, the marketing arm of Belaruskali, has said that sanctions on exports could “provoke a worldwide collapse” in fertiliser and agriculture markets and may have a wide-ranging impact on global food security.
Belarus is among the world's largest potash-producing nations, second simply to Canada; producing approximately 12 million tonnes per year from the potassium-rich fertiliser – around 20 percent of global supply.
According to the Interfax news agency, Belarusian potash exports fell by 16 per cent year-on-year, to 2.2 billion US dollars in January-November 2022.
The potash is primarily exported in the Baltic port of Klaipeda – which handles 97 per cent of Belarusian potash exports. The Lithuanian port earns 14 million euros a year from the transport contract that runs until 2023.
Belarus is now expected to reroute the sanctioned potash to customers away from EU via Russian and Ukrainian ports, that will increase transport costs.