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Dr Lev Lvovskiy, Dr Justina Budginaite-Froehly

The (in)dispensable Belarusian potash

Belarus used to be one of the major potassium chloride (also known as potash) exporters in the world, supplying many countries with this crucial crop field fertiliser. Having no access to the sea, Belarus has been heavily dependent on the Lithuanian seaport Klaipėda for its potash exports. In the aftermath of the violent crackdown on peaceful protests following the rigged presidential elections in August 2020, the Belarusian potash industry was sanctioned by the US and – consequently – refused access to the Lithuanian seaport for further transit to the global market.

  • Belarus
NL 84 | September - October 2023
International Trade and Regional Integration

The EU sanctions on potash imports from Belarus and its industry have also been expanded since the start of the war against Ukraine. Although following the introduction of sanctions serious concerns over global food security were raised, the data show that after the initial price shock and the subsequent market restructuring, the situation in the global potash market is stable. The biggest effect of the current sanctions is therefore, as intended, on the revenues of the major state-owned potash producer Belaruskali.

The role of Belarus in the global potash market

In 2019, the year before the pandemic, Belarus exported more than 10.5 m tons of potash fertilisers to more than 100 countries worldwide. The major importers of Belarusian potash traditionally were Brazil, China, Indonesia, India and other overseas countries, accounting for more than half of Belarusian potash exports. Another 15% of potash used to go to the EU and the US.

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With Belarus controlling roughly 20% of the world’s potash market, its potash exports reached USD 2.8 bn in 2019, making up more than 4% of GDP or 7% of total exports. The major strategic state-controlled potash producer Belaruskali has traditionally been a key source of tax revenue and foreign currency inflow for the country.

International sanctions

In 2019, only 5% of the total potash exports from Belarus went to countries in its immediate neighbourhood. With a substantial part of potash exports destined for remote countries, the land-locked Belarus was heavily dependent on the transport infrastructure of other countries for shipping its potash overseas. Lithuania played a key role in this respect, as 90% of Belarusian potash was exported through its seaport Klaipėda.

However, reacting to the violent crackdown on peaceful protests and disrespect to international human rights standards by the Belarusian authorities, the US imposed a new round of sanctions on Belarus in August 2021. These included a prohibition of new contracts with Belarusian potash producers and exporters, with a special clause allowing for the existing contracts to be fulfilled.

Although the US did not enact so-called secondary sanctions, Lithuania decided to ban all potash transit through its territory and seaport starting on 1 February 2022. This decision can be considered the most painful economic sanction towards the regime in Belarus.
In addition to these measures, the EU introduced a total prohibition of potash imports from Belarus in March 2022, following the war against Ukraine, consequently freezing the assets of Belaruskali and its exporting arm Belarusian Potash Company in June 2022.

Once these sanctions were enacted, Belarusian authorities stopped reporting statistics on certain exports, including potash. However, according to the “mirror statistics” reported by countries importing potash from Belarus, its potash exports by volume fell at least by 50% by the beginning of 2022. The decline became even more pronounced several months after Russia attacked Ukraine, with Belaruskali effectively halting a large part of its production.
According to estimates of the largest world potash producer Nutrien (Canada), Belarus was able to export only 3 m tons, or about 45% of the 2021 volumes, in 2022. It is estimated that despite the establishment of alternative logistical routes for potash exports, the current volume of potash exports from Belarus at best reaches roughly only 70% of the presanctions level.

Dealing with sanctions

Since the potash industry in Belarus is fully state-controlled, it was a clear potential target for international sanctions. However, except for some premature considerations of building a river potash export terminal in Ukraine before the war, or a seaport in Russia, Belarus did little to mitigate its vulnerability in this area.

Limited efforts by Belarus to diversify its potash export routes can be partially explained by its disbelief in Lithuanian political will to block access to the Klaipėda seaport, as Belaruskali co-owned 30% of its bulk mineral fertilisers terminal (BKT), and earnings from the transit of Belarusian potash constituted a large share of profits of the Lithuanian railway and the BKT. However, after it became public that Belarusian potash was being further transported through the Lithuanian seaport despite the US sanctions in effect since December 2021, the public pressure on Lithuanian politicians to terminate the transit contracts was so strong that it turned into a complete transit ban. The following loss of Ukraine as a customer and transit provider since February 2022 deteriorated the situation even further.

A large fraction of potash exports today goes to China through the railroad via Russia. Belarus also uses spare logistic capacities in the Russian seaports that are available to it. However, as Russia itself is a major potash exporter, it treats Belarus as a rival in the global potash market and thus has no interest in providing effective support in this area.

Through the provision of its transport infrastructure, Russia has become a de-facto monopolist of the Belarusian potash transit and thus can charge higher transit fees, pushing the profits of Belaruskali down. In addition to that, railways to China and even rail links to the Russian seaports are much longer and more expensive than the ones to Klaipėda, automatically pushing the transit prices up.

Concerns over global food security

Due to Belarus’ large share in the global potash market, concerns over potential shortages of fertilisers that might threaten global food security were raised. Recently the UN Secretary General António Guterres suggested lifting sanctions on Belarusian potash due to the potential food shortages in the Global South. Belarus and Russia are actively exploiting such proposals for their lobbying and propaganda campaigns.

However, global markets appear to be far away from the catastrophic predictions. Potash prices indeed started to rise steeply immediately after the introduction of sanctions and skyrocketed during the first few months of the war. However, as producers started to adjust their production, prices went down at a comparable speed.

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Although current potash prices are still slightly higher than in 2019, there are no indications of potash shortages on a global scale. The sanctions resulted in the restructuring of the global potash market players rather than shortages of potash itself. The missing share of Belarusian potash is now mainly being covered by increased potash exports from Canada.

Outlook

The state-controlled potash industry in Belarus is one of the most important sources of revenue for the Belarusian state. This makes it a justified target for international restrictive measures following the widespread internal repressions in Belarus, its disrespect of international rules and norms, and its complicity in Russia´s war of aggression against Ukraine. The economic data show that the secondary effects of these measures on the global potash supply were of a temporary nature. As global prices for potash stabilised, sanctions on the Belarusian potash industry continue to remain one of the most important pressure instruments in the toolkit of the international community.

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Dr Lev Lvovskiy is the academic director at the BEROC research center and can be contacted at lvovskiil@gmail.com.