When There’s Nothing to Shoot Back

• 31.01.2022, 12:56

All actions of the Belarusian authorities resulted only in the opposite reaction.

The new year started for Belarus with exclusively unfavorable economic omens. Given the emerging global economic downturn due to the covid, last year's export miracle is unlikely to be repeated.

And the consequences of sanctions, which Belarus has been experiencing since the first days of the new year, threaten the economy with serious problems. Judging by the trend, these problems will only intensify over time, says Belarusians and the Market.

Vulnerable transit

"Neighborly relations" between Belarus and Lithuania have already reached such a critical level that Vilnius is ready to bear serious losses to annoy the Belarusian authorities. As a close neighbor, Lithuania, of course, knows better how it can hurt more. That is why its decision to terminate the agreement on the transit of Belarusian potassium from February 1 may become the most serious sanction of all that the West has ever imposed on the Belarusian authorities.

Of course, it is unlikely that the transit will stop all at once. Private haulage companies can pick up the baton. On the other hand, the Lithuanian government had a reason to cut the railway transit. It will not give a chance for private companies to skim the cream off. Given the volumes of transit, the mere threat of its cessation can inflict serious losses on Belaruskali and the Belarusian economy.

The beginning of the year is the time when long-term contracts for potash supplies are signed. For Belaruskali, they are China, India and Norway's Yara. At that, Yara, which used to provide Belaruskali with 10-15% of its income, has already announced its refusal to continue the relationship.

India and especially China, of course, are less susceptible to the political conjuncture. However, it means they are just not going to make sensational statements about the termination of relations. The Belarusian Potash Company may find itself excluded from the pool of selected suppliers. To sign a long-term contract, the supplier must at least guarantee the ability to deliver. When the only route available to Belarusian potash is at risk of being shut down, no guarantees can be convincing.

Alternative delivery routes are so dubious that even the Belarusian government has stopped mentioning them. It was good to brag about alternative routes as long as the threat of transit shutdown was theoretical. However, no fraternal feelings will help Russian ports to acquire an additional capacity for the transhipment of Belarusian potash fertilizers, given that even Russian fertilizers lack this capacity. It is possible to try to squeeze Uralkali. It is unlikely that Uralkali will do it voluntarily for the sake of its main competitor.

Potash fertilizers are not only about taxes and the well-being of Belaruskali. Though both matter. Export of potash fertilizers is the second most important external source of currency, which provides both replenishment of the gold and foreign exchange reserves and payments on foreign debts. In a year when Minsk has to pay $3.2 billion to creditors, its reduction can be critical. Even taking into account the negotiations on the other refinancing of the Russian debt.

This year, the World Bank predicts a decline of the Belarusian economy by 2.8%, and friendly Eurasian funds predict inflation of at least 10%. However, even such forecasts will remain relevant only if the number of sanctions remains unchanged. The Belarusian authorities will have to do their best to achieve this, because the sixth package, which, judging by the announcements, is more threatening than all the previous ones put together, was announced for the spring.

When there is nothing to shoot back

While the Western sanctions were mostly symbolic, the Belarusian authorities did not mince words. But the consequences of asymmetric responses turned out to be the opposite of what they had hoped for. The forced landing of the plane turned into the fourth package of sanctions and the migration crisis turned into the fifth. Even a partial redirection of oil product transit to Russian ports did not bring the Lithuanian economy to its knees. The counter-sanctions, which the government has imposed since early this year against imported food, proved to be more of a means to redistribute the domestic market.

During the week that passed after the decision of the Lithuanian government, Minsk failed to come up with a decent response. The Belarusian authorities prefer to pretend they have not heard about any threats to transit. And even the state-run mass media are unusually restrained and try to avoid mentioning this decision at all.

The point is that the Belarusian authorities have run out of all the variants to shoot back. There is very little left in their arsenal at the moment. The available responses may be more detrimental than the sanctions themselves.

An attempt to block the transit between Lithuania and Ukraine, which Minsk has already threatened in more prosperous times, can cause forced Ukrainian sanctions against Belarus. A trade war of any scale would risk closing the borders with the EU for Belarusian goods.

There's still a foreign business, the consequences for which the Belarusian authorities have long been trying to scare the West. However, any sanctions against Western companies working in Belarus would strike the Belarusian economy before the EU would notice them. However, once the EU notices them, it will hit again in the form of additional sanctions. In other words, official Minsk may at best get a feeling of slight moral satisfaction, but it will not compensate for the financial losses.

The West seems to be utterly disappointed in any form of dialogue with the Belarusian authorities. The only language it intends to use for further dialogue with official Minsk is the language of sanctions. For Western opponents to reconsider their policy, Minsk needs to offer something more substantial than constitutional reform. And the longer the Belarusian authorities drag out their proposals, the more difficult it will be to engage in a constructive dialogue.