Belarus is losing the potash war

A conflict between Belarusian authorities and Russian potash giant Uralkali, by all assessments, comes to its conclusion.

Uralkali CEO Vladislav Baumgartner left his KGB-prison cell for house arrest in a hidden apartment. At the same time, a major owner and shareholder of Uralkali, the latter-day foe of Alexander Lukahenka, Suleiman Kerimov, negotiates the sale of his shares to, apparently, pro-Kremlin oligarchs.

All in all, it looks like the Belarusian side has overall been victorious. However, an unprejudiced analysis of the middle-term and long-term outcomes of this conflict indicates that Belarus as an independent state and Alexander Lukahenka personally are more likely to suffer from the consequences of the potash war.

Both Sides Prepare for a Truce

As it happens in authoritarian states, official media serve as the voice of the government, rather than of the public. It went this way in the potash conflict as well: Belarusian state TV made the first step towards reaching a truce.

They hinted that the partnership with Uralkali (who had abrogated common sales agreement with Belarusian state-owned fertilizers' producer Belaruskali, and thus made the world potash market crumble) can be restored given the Russian company changes its owner, or namely, that oligarch Suleiman Kerimov sell his assets (21.75% of the company's stock).

On 8 September it was rumored that Kerimov was going to sell his shares to pro-Kremlin banker, Vladimir Kogan. People close to the negotiations confirmed this data to a number of leading western media: the Wall Street Journal, Financial Times, Bloomberg etc.

At the same time three influential businessmen, all close to Vladimir Putin – head of "Sberbank" German Gref, head of "Gazprom" Alexey Miller and head of "Rosneft" Igor Sechin – visited Minsk to meet with Alexander Lukashenka and to reaffirm desire for and commitment to a continued partnership with Belarus.

It happened soon after two members of the Russian government – Vice-Premier Arkadsy Dvorkovich and Chief Sanitary Inspector Gennady Onishchenko – had threatened to cut oil supplies to Belarus and to stop importing Belarusian dairy products. These two persons, together with Suleiman Kerimov are said to be closer to prime-minister Dmitry Medvedev.

Based on these controversial signals, most analysts concluded that the so-called "Medvedev bloc" stood for further confrontation, while the more powerful "Putin’s bloc" wanted to end the conflict.

On 6 September Putin himself said that Minsk and Moscow are trying to settle the dispute and try not to make too much noise about it.

Then, on the day Russian president arrived in Minsk (or to be more precise – on the night before his arrival) to partake in joint war games, Vladislav Baumgartner was released from a KGB pre-trial prison and moved to house arrest in a hidden apartment, rented especially for him. Since then he has lived with four guards and his mother, who came from Russia to be at his side.

On 4 October the Belarusian authorities handed over a part of the Uralkali criminal case materials to Russian investigators. Experts believe that Baumgartner will move to Russia the moment Suleiman Kerimov finally sells his shares in the Uralkali. In other words, the resolution of the conflict goes in line with the Belarusian side’s expectations.

Why Did the Russians Concede?

The Kremlin has a "tough guy" reputation on the international arena: it presses the weaker, seldom compromises with the stronger and resorts to a full spectrum of policies to obtain its goals. However, the Russian reaction to the impudent arrest of Uralkali CEO (after he had been invited by the Belarusian prime-minister to negotiate) appeared to be suspiciously benign.

There are a number of reasons that made Vladimir Putin concede in the potash conflict.

Firstly, the Russian public, especially Putin’s leftist conservative-patriarchal supporters do not feel much empathy towards oligarchs like Suleiman Kerimov. On the contrary, polls indicated the overwhelming support of Russian people to Lukashenka in the conflict. To go against this public attitude would harm Putin’s political image.

At the same time, Russian relations with Ukraine have become too tense lately due to Ukraine's decision to sign the Association Agreement with the EU. In these conditions, the escalation of a conflict with Belarus would be risky for Russia, first and foremost, because Belarusian and Ukrainian pipelines are a major channel for Russian oil and gas transportation to Europe.

And finally, the Kremlin has no interest in a conflict with Lukashenka because on 1 January 2015 they plan to sign a Eurasian Economic Union treaty, pulling together Belarus, Kazakhstan, Russia and, probably, Armenia. This project remains the primary geopolitical objective for Vladimir Putin personally and for its sake he is ready to swallow an insult from Lukashenka.

Lukashenka’s Pyrrhic Victory

Though many commentators, including ones from Belarusian state media, declared Lukashenka’s, and more broadly, Belarus' victory in this conflict, this rhetoric is rather deceiving. The economic and political losses of this "victory" seriously outweigh its symbolic achievements.

The volume of direct economic damage after the breakdown of the jointly owned company, Belarusian potash company (BPC), remains unknown. After the quarrel, the Belaruskali management had to shut down two of its four potash mines and cut the working hours of its employees by 33%. The problem is rooted in the lack of Belarusian sales managers at BPC in the wake of the Russian specialists that swiftly left Minsk due to the conflict. Also potash prices on the global market have not yet bottomed out.

Another problem that has arisen after the potash conflict is tied to Russian oil supplies to Belarus. On 17 September the Russian Ministry of Energy decided to cut the volume of oil supplies almost twofold in the fourth quarter of 2013. Apparently, Belarus' chances at getting the desired volume of oil for 2014 have lessened.

Finally, the way the conflict is getting resolved implies the continued economic and political dependence on Russia, and "Putin’s bloc" in particular. The point here is that the Russian leadership hid their pride in the potash conflict by looking forward to receiving gratitude and some concessions from Minsk in the future.

Hence, Lukashenka’s room for political maneuvering is tapering away. The latest rumours about Igor Sechin’s oil company "Rosneft" obtaining a monopoly on oil supplies to Belarus (in other words – the concentrated full control over Belarus' oil supplies in pro-Putin hands) became the first sign of this growing dependence.

Given the frozen western vector of Belarusian foreign policy, any additional increase in dependence on the Kremlin on the eve of the Eurasian Union's launch bears certain risks for Belarusian sovereignty. This especially concerns the relations with the current Russian leader, who is willing to restore a lost empire and ready to concede in a local potash battle for the sake of his sacred Eurasian project.