Obscure but crucial commodity fuels geopolitical tussle in Eastern Europe

KLAIPEDA, Lithuania – For nearly two decades, long freight trains laden with reddish-brown grit have rumbled into Lithuania’s main port on the Baltic Sea, providing an economic lifeline for Alexander Lukashenko, the autocratic president of neighboring Belarus.

That lifeline is to be cut February 1 after a decision by the Lithuanian government to halt the wagons carrying Lukashenko’s biggest source of cash: potash fertilizer for export to Europe and beyond through the port of Klaipeda.

Lukashenko’s opponents applaud the move, but others worry about an unintended consequence: It benefits Russia, which is expected to take over the transport of Belarusian potash and could gain a stranglehold over a substantial portion of the world’s supply of the obscure but indispensable commodity.

Potash, which Russia also produces, might not look like much, but, prized as a crop nutrient vital for global food security, it has more than doubled in price over the past year, generating billions of dollars in extra income for Lukashenko and other producers. The closing of what had been Belarus’ only export route for the commodity through the Baltics will drive prices even higher.

Lithuania’s state-owned railway and the Klaipeda port earn a large chunk of their revenue from potash. Arguments among Lithuania’s political and economic elite about what to do about the trade restrictions have been so heated that the government in December offered to resign over the issue. The ruckus erupted after the chair of Parliament’s foreign affairs committee, Zygimantas Pavilionis, accused the government of betraying the United States, a key ally that last year imposed sanctions on Belarus’ state-owned potash producer, and of enabling a dictator.

Pavilionis, a hawkish former Lithuanian ambassador to Washington, said that the issue had become so tense because “it is about very big money.”

In a December letter to Lithuania’s state-owned railway, the US Treasury explained that US sanctions on a big Belarusian potash producer did not apply to foreign entities, but it urged what it called a “risk-based approach” to compliance, suggesting there could be problems in future.

Belarusian opposition leader Svetlana Tikhanovskaya, who lives in exile in Lithuania and who has long lobbied to stop the potash shipments, said she was delighted to see the end of what she called an “immoral” business whose termination will help empty “the dictator’s deepest pocket.”

That pocket is Belaruskali, a giant state-owned potash producer that serves as a cash cow for Lukashenko’s government. Belarus’ biggest taxpayer and biggest exporter, the company accounts for around 20% of world potash supplies.

But the US-led drive to bankrupt Lukashenko has stirred alarm about the resulting windfall for Russia. Canada, the world’s biggest potash producer, will also gain from an expected surge in prices, but Russian gains go far beyond just price.

“Russia is applauding,” Algis Latakas, director of Klaipeda port, said. Belaruskali, he said, will most likely simply switch to using Russian trains and transport the commodity to Ust-Luga, a Russian port near St Petersburg whose development has long been a pet project of President Vladimir Putin.

Latakas said he understood his government’s desire to “fight nondemocratic forces” but cautioned that the end result in this instance could well be that “Russia gets a big economic advantage” and the “power to control food prices.”

Whether sanctions work has long been a topic of academic and political debate, but in the case of those imposed on Belarus, the results have so far been particularly meager.

Over the past year, during which the European Union and the US imposed multiple rounds of economic restrictions on Belarus, the value of trade between Europe and the East European nation has nearly doubled. That is largely because of sharp increases in the price of the commodities that Lukashenko exports, mainly potash and oil products, whose value has soared thanks in part to growing, sanctions-induced uncertainty over supplies.

“Lukashenko is just making more money,” said Laurynas Kasciunas, chair of the Lithuanian Parliament’s national security and defense committee.

Instead of being persuaded to free political prisoners as had been hoped, Lukashenko has arrested only more people, with around 980 now behind bars for their political activities, according to Viasna, a group that monitors human rights in Belarus. That is more than double the number reported in June when the current round of sanctions began after the forced landing in Minsk, the Belarusian capital, of a Ryanair passenger jet carrying a young dissident, who was promptly arrested.

Tikhanovskaya acknowledged “the paradox that sanctions have been imposed but Belarus’ income has increased” and said the squeeze on Lukashenko needed to be tightened so as to apply “unbearable pressure” to shake the loyalty of officials and businesspeople Lukashenko depends on to stay in power.

Crucial for his economic survival is potash, of which Russia and Belarus together produce around 40% of the world’s supply.

The two countries’ producers have for years competed fiercely for export markets, but, with Belaruskali now likely to become dependent on Russian railways and ports to sell its products abroad, Moscow will gain powerful leverage over the Belarusian company. That would put it in a position to use potash much in the same way it uses its control of huge reserves of natural gas to skew the market and put pressure on European countries.

“Everyone throws around pretty slogans about democracy, but the result will be exactly the opposite of what they want,” said Igor Udovickij, majority owner of a bulk cargo terminal at Klaipeda port part owned by Belaruskali.

“Whoever controls potash controls the supply of food around the world,” he said. “We are just giving Putin a nuclear weapon, but, unlike the weapons he already has, this is one that he can actually use.”

Udovickij has a clear interest in keeping freight trains from Belarus running to Klaipeda. But others with no money at stake also worry that Russia will be the main beneficiary of efforts to halt the potash traffic through Lithuania, formerly part of the Soviet Union – against its will – but now a member of the European Union and NATO.

“We need to be very careful in imposing sanctions not to just create opportunities for others,” said Kasciunas. As a stalwart US ally, he said, Lithuania has a duty to support sanctions imposed on Belarus by the US Treasury, but the country also has other concerns, namely Russia.

“Nobody here is pro-Lukashenko, but everyone worries most about Russia,” he said. “There are very complicated geopolitics at play with potash.”

Russia has been pushing for years, so far in vain, to get control of Belaruskali, the crown jewel of Lukashenko’s otherwise mostly decrepit industrial base. Unlike Belarus’ other main source of revenue, petroleum products that rely on supplies of crude oil from Russia, the potash company does not depend on Russia to do business. At least not until this month.

Lukashenko, having called for help from the Kremlin to put down huge street protests set off by a presidential election widely seen as rigged in August 2020, has steadily lost his ability to resist Russian demands. And Belaruskali is now looking increasingly vulnerable.

In recent weeks, the company has not only lost its export route through Lithuania but also its biggest European customer, Yara, a partly state-owned Norwegian company.

Yara announced January 10 that it was phasing out all purchases from Belaruskali and would stop buying by April 1.

Tikhanovskaya dismissed concerns that sanctions would push her country only closer to Russia as an argument promoted by Lukashenko and his supporters “to try and stop principled action – it is all a bluff.”

Still, Lithuania will lose hundreds of millions of dollars from halting Belarus exports through Klaipeda, and, according to an internal government report assessing potential damage, it could face legal claims of up to $15 billion over broken contracts. Udovickij, for one, says he plans to sue the government for hefty damages.

But for a small country dependent on the US for security against an increasingly assertive Russia, a lot more is at stake than just money, the minister of transport, Marius Skuodis, said. Potash, he added, “is a very difficult geopolitical question.”

This article originally appeared in The New York Times.