Belarusian leadership given a week to mull over way out of the ‘potash conflict’

Russia’s chief sanitary doctor Onishchenko said possible restrictions on Belarusian dairy products would be postponed by one week.

A meeting between the Russian and Belarusian Deputy Prime Ministers on September 5^th has confirmed Russia’s unchanging stance regarding the Belarusian Potash Company (BPC) conflict. Economic losses from actions that Russia may undertake if Belarus refuses to resolve the conflict ‘peacefully’, will be much higher than Belarus’ damage claims in the BPC criminal case. Due to the significant deterioration of the macroeconomic situation in Belarus, time is not on Belarus’ side.

On September 5^th, Deputy Prime Minister Semashko was given an ultimatum in Moscow. In essence, Russia said it would supply 18.5 million tons of oil instead of the anticipated 23 million tons for 2013. The supply of Belarusian dairy products to Russia may also be restricted. Other restrictions on exports from Belarus are also possible. Russia’s main condition for resuming the negotiations is the immediate release of the Uralkali CEO. On September 6^th, Russian President Putin effectively confirmed the Russian government’s position, but refrained from direct involvement in the conflict at this stage.

If the conflict continues, economic losses will be significant. By late Q3 2013 oil supply to Belarus will be circa 16.3-16.5 million tons. The agreed 18.5 million tons supply implies that in Q4 Belarus will receive only 2-2.2 million tons, which means a significant cut in the refineries’ capacity use. The Belarus’ supply of dairy products to Russia is worth circa USD 160-170 million per month. If dairy supply is cut by one-third, Belarus will lose at least USD 53- 57 million a month. Russia may also put forward claims regarding Belarusian sugar supply volumes. Annual quotas for sugar supply have been met, but there are cases of sugar supply by road bypassing the arrangements. Restrictions on sugar supply may reduce Belarus’ foreign currency proceeds by USD 20- 25 million per month. Russia also has issues with foodstuff re-exports from the EU to Russia. Belarusian pork exports to Russia have been suspended and supply of meat products produced in Belarus is undergoing inspections.

Potential losses of foreign exchange proceeds against the background of reduced international reserves and growing devaluation expectations may result in significant adjustments to the national currency exchange rate. The latter is highly undesirable for the authorities, as it would imply that its economic policy had failed. Belarus’ export markets are not diversified, which disables any long-term trade war with the major trading partner.

If Belarus and Russia fail to reach a compromise over the Uralkali CEO case, Russia will implement various measures that will affect Belarus’s economy and will have an immediate negative impact on the economic situation. Thus, Belarus does not have much time left to decide on the Baumgertner case.