Ihar Lenkevich, the author of Reform.by, shares his opinion on what consequences may follow the termination of relations between Belaruskali and Lithuania, and what both sides of the agreement may lose. We quote his words unchanged.
The Lithuanian government announced the possibility of terminating the agreement between the state railway and Belaruskali. This was the second tangible hit to Belarusian export in two days – the day before, the Norwegian company Yara refused to purchase potash. The decision threatens to worsen the already tense Belarusian-Lithuanian relations. And in future – to lead to a large-scale trade war.
On Wednesday, the Lithuanian government confirmed the conclusion of the commission for the verification of transactions of strategic enterprises, adopted in December: the agreement between Lithuanian Railways and Belaruskali does not meet the interests of national security. Therefore, it must be terminated on February 1. Marius Skuodis, the Minister of Transport and Communications of Lithuania, called this decision «the first step towards stopping the transit of Belaruskali fertilizers through Lithuania».
January brought alarming news for Belarusian potash exports. The day before yesterday, it became known that one of the world’s largest fertilizer producers Yara will stop buying raw materials from Belaruskali from April 1, 2022. In total, this is a tangible blow to Belarusian potash exports.
The decision to terminate the contract between Lithuanian Railways and Belaruskali was not easy for the Lithuanian government. Back in December last year, this issue almost led to a series of resignations in the cabinet of ministers of this country. The key problem is that for the Lithuanian Railways, as well as for the economy as a whole, the refusal to cooperate with Belaruskali is a serious loss.
Nevertheless, on December 21, 2021, the Lithuanian government commission reported that the agreement between Belaruskali and Lithuanian Railways, as well as the amendment made to it in October, do not correspond to the interests of national security. Moreover, according to Marius Skuodis, if other carriers want to transport Belaruskali fertilizers through Lithuania, their transactions will also be subject to state control. This means that private Lithuanian carriers will most likely not be able to cooperate with the Belarusian company.
On the day of the adoption of this decision by the Lithuanian government, Sviatlana Tsikhanouskaya met with the President of this country Gitanas Nauseda. They discussed the situation with the transit of potash fertilizers. The parties agreed that it is important to close the loopholes in the sanctions and find a way to stop the transit of sanctioned products through the Baltic countries. A few hours later, it became known about the termination of the contract of Latvian Railways with Belaruskali.
It is clear that there is much more politics than economics in the decision of the Lithuanian side. And the refusal to transport Belarusian potassium is fraught with an even greater aggravation of the already difficult relations between the two countries.
The Belarusian authorities threatened Lithuania with lawsuits, stopping the supply of raw materials, and blocking transit from Ukraine in case of transit closure for Belaruskali. Different methods of pressure can, and for sure will be invented – the official Minsk has nothing to lose, so any methods of influencing the northern neighbor will be good.
The question arises – how much is the Lithuanian side ready for such a turn of events? And will the Conservative government’s decision be the beginning of its political end? Because in addition to the railways, the port of Klaipeda will also suffer. And multimillion-dollar investments in port infrastructure and railways will be lost. However, we will leave the concerns about the fate of the Lithuanian government to Lithuanian political analysts. It is better to look in the direction of Belarus.
The situation does not look optimistic here too. Lithuania terminates the contract on February 1. And there is no time left to reorient the transit of potash. It is logical to assume that the Belarusian side should have foreseen the possibility of such an outcome and prepared for it in advance. Surely such work was carried out. But it’s not that simple. Because there are desires, and there are opportunities.
The transfer of cargo traffic to ports in Russia is problematic. The main difficulty is not even that it increases the distances and the cost of transit. And the fact is that Russian ports cannot accept large volumes of Belarusian fertilizers due to poor technical equipment and congestion. A significant part of Russian fertilizers is exported through the ports of the Baltic States, including through the Klaipeda. And not because Russians seek to support the Lithuanian economy.
Perhaps, Russian authorities will make a political decision, and Russian cargoes will be «moved» to some extent in favor of Belaruskali. Perhaps, Minsk has other trump cards up its sleeve. But whether it will be possible to preserve all the volumes of lost Lithuanian transit is a big question.
The termination of the transit of Belarusian potash fertilizers in the absence of an alternative route will also affect the interests of third countries. Who also may not be left out, presenting their claims. The question is: to whom they will be addressed.
One of Belaruskali’s competitors, the Canadian company Nutrien, has already noted the potential impact of sanctions on the fertilizer market. Its representatives have raised concerns about the shipments because of the potential impact on ship chartering and transactions in U.S. dollars.
The reduction in supply volumes will also affect prices. The Belarusian Potash Company has offered the lowest price in the fertilizer market in recent years. Competitors even repeatedly reproached Belarusian exporters in dumping. World potash prices rose last year amid growing demand. The reduction of Belarusian supplies may provoke a further increase in prices.
All this in total will lead to significant changes in the market of potash fertilizers. The same Nutrien has already announced an increase in fertilizer production after the EU imposed sanctions against Belarus. Due to difficulties with supplies, the market share of Belaruskali may decrease. Both Belarus and Lithuania will now have to think and look for how to plug the gaps that have formed. Obviously, both sides will have a hard time.
All this will be multiplied by the inevitable loud political statements, economic counter-sanctions, attempts at pressure and blackmail. A serious war will break out. And in the near future, the topic of Belarusian-Lithuanian relations will occupy a significant part of the news. The countries are actually in the phase of «hot economic conflict» now. Lithuania is followed by the EU. Behind Belarus is the Russian Federation. Those who receive more help and support will find it easier to survive in this war.