EU Hits Belarus With Sanctions on Potash, Petroleum Goods

(Bloomberg) -- The European Union imposed a sweeping set of sanctions against Belarus, targeting key economic sectors in its strongest response yet to last month’s forced landing of a Ryanair flight and the arrest of a journalist in Minsk.

The EU sanctions unveiled Thursday hit petroleum products and potash fertilizers, the country’s two main sources of foreign-currency revenue. But while the EU prohibited the purchase, import or transfer from Belarus of petroleum goods and some types of potash, it also narrowed the scope of some of the restrictions, limiting the impact.

Sanctions will apply to contracts made after June 25.

The EU banned import and transportation of two types of potash that accounted for about 20% of Belarusian potash sales in the EU last year. The main product of the country’s state-owned fertilizer maker, Belaruskali, however, was omitted from the restrictions, said VTB Capital analyst Elena Sakhnova.

Russian Shift

In addition, the EU banned imports of some complex fertilizers known as NPK, which are produced by other Belarusian producers.

The EU also banned transportation of those types of fertilizers through its territory, meaning that Belarus may need to switch from European ports in the Baltic countries to Russians ones and use Russian railways, Sakhnova said. In her estimation, the move may allow Russia to earn about $500 million per year from the transportation of Belarusian products.

State-owned Belarusian Potash Co., which handles all exports of potash from Belarus, declined to comment at the time of publication.

Belaruskali is the world’s second-largest producer of potash, the soil nutrient which is used to improve crops in some of the most populated countries. The company, which controls about 20% of the global potash market, ships the bulk of its products to China, India and Brazil. Shipments to the EU only brought Belarus 8% of its total $2.4 billion potash export revenue last year, according to data on the national statistical committee website.

Petroleum Restrictions

The EU ban on exports of petroleum products may potentially have a greater effect on the former Soviet republic’s cash-strapped economy which relied on discounted Russian crude by turning it into fuels and selling them abroad for a profit.

In the first four months of this year, Belarus doubled its petroleum export sales to $1.5 billion under the category targeted by the new EU sanctions. Half of those proceeds came from the EU and another 40% originated from sales to Ukraine.

The EU sanctions will also restrict the trade of tobacco-related products, monitoring technology, dual-use goods and technologies, as well as limit the country’s access to EU capital markets, according to a Thursday statement. The financial restrictions include prohibiting EU operators, including insurance companies, from providing investment services and new lending to the government in Belarus, the central bank and several majority state-owned entities and banks. EU operators will also be banned from dealing with transferable securities and money-market instruments. The sanctions also include further limits on the sale of arms.

The move comes after the EU, the U.S. and the U.K. sanctioned dozens of Belarusian individuals and organizations in a coordinated response meant to pressure the government of President Alexander Lukashenko.

In April, the U.S. sanctioned nine petrochemical companies from Belarus, including Naftan refinery, as a consequence of authorities’ “flagrant” disregard for human rights. On Monday, the EU expanded its personal sanctions list against people close to the country’s president, Alexander Lukashenko.

Lukashenko, in power since 1994 and facing unprecedented resistance to his declaration of victory in presidential elections last year, compared the new restrictions to “hybrid warfare”.

“We must show those rascals across the border that their sanctions are their impotence,” Lukashenko said in a statement on his website. “And we will do it.”

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