EU May Sanction Belarus’s Potash Industry by This Summer

The European Union is aiming to hit Belarus with a new round of sanctions by June over the forced landing of Ryanair flight FR4978 and the arrest of a journalist, with tougher economic measures to follow by the summer, according to an EU official familiar with the matter.

The more stringent measures could target potash, a soil nutrient used to improve crops, the official said, asking not to be named discussing private conversations. Potash is the country’s major export -- supplying a large share of European demand -- and its only abundant mineral resource.

The EU has already sanctioned seven Belarusian entities and 88 individuals, including discredited president, Alexander Lukashenko, and was already working on adding more people to that list over their support for the regime and the repressions of protests. Following agreement between EU leaders on Monday to sanction Belarus further, that list is now expected to expand to include people involved in the Ryanair incident and should be adopted by the bloc’s foreign ministers on June 21.

The EU leaders also called for the adoption of “targeted economic sanctions” and work on preparing the framework to allow for these new measures has also begun.

The exact sectors to target have yet to be defined but are likely to include areas such as potash where state enterprises are most active, according to the EU official. Belarus is one of the world’s biggest exporters of potash and as such any restrictions could impact global markets. Other targets could include Belavia, the country’s national airline.

EU May Sanction Belarus’s Potash Industry by This Summer

“It makes no sense rocking Belarus,” Lukashenko told a gathering of lawmakers and officials in Minsk Wednesday. He said events around Belarus constituted “hybrid warfare,” state-owned news agency Belta said.

Lukashenko defended his actions in Sunday’s Ryanair flight incident and said that Belarus will “compensate” for possible Western sanctions by going to other markets and fostering its close ties with Russia.

“We’ll substitute Europe, which is growing mercilessly old, for rapidly growing Asia,” he said.

The EU measures will need to name specific sectors and be clearly defined so as to withstand potential legal proceedings and win the backing of all member states. Forging unanimity between EU governments has proved tricky lately, with several countries keen to avoid hurting their economies or dent controversial political alliances.

“A lot will depend of what type of sanctions are implemented,” said Elena Sakhnova, an analyst at VTB Capital. “If those are just sectoral penalties, such as limiting Belarus potash industry’s ability to get financing in European banks, this won’t cause disruption on the market as Belarus uses alternative sources of funding anyway.”

EU May Sanction Belarus’s Potash Industry by This Summer

Potential Impact

More meaningful penalties would prevent European companies from trading with the Belarusian potash industry, though Belarus would still be able to divert from Europe to other markets, primarily Asia, Sakhnova said.

That may cause a short-term increase in potash prices in Europe, as Belarus supplies about 25% of the region’s demand, though the situation should normalize fairly quickly, she said. Producers like Russia’s Uralkali PJSC may replace Belarusian volumes in Europe, she said.

Speaking to European parliament’s foreign affairs committee on Wednesday, exiled opposition leader Sviatlana Tsikhanouskaya urged the EU to ban exports of potash, oil products and timber, as well as halting lending to Belarusian banks.

Potash producer Belaruskali is one of the largest state-owned companies in Belarus. Minsk-based state-owned Belarusian Potash Co. is a trader, handling export sales of all potash produced in Belarus.

“There is too much speculative information about the topic”, Belarusian Potash Co.’s press service said by email. BPC, as the company is also known, said it hopes for a “measured and reasonable” approach in the matter as potash supplies are important for food safety and agriculture industry in the countries that buy the nutrient.

In addition to sanctions, some member states will be withdrawing their aviation agreements with Belarus, while governments are also discussing banning Belarusian carriers’ access to the EU, including overflights and landing rights, according to the same official.

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