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2021.07.05 08:00

How painful will Belarus sanctions be for Lithuanian economy?

Sofija Lapėnienė, LRT TV2021.07.05 08:00

The EU announced new sanctions on Minsk last month, banning the transit of potash fertilizer, oil, and tobacco products. While supporting the sanctions, Lithuania was mindful of the effects on its economy. These may be milder than previously feared.

The EU sanctions target Belaruskali, one of the world's largest potash fertilizer producers. The company uses the services of the Lithuanian port of Klaipėda and Lietuvos Geležinkeliai (Lithuanian Railways) to export its production.

However, sanctions will only affect contracts signed after June 25, therefore, activities under the existing contracts will not be disrupted.

There was a risk that the restrictions would negatively impact the Lithuanian economy, since they would lead to losses for the port of Klaipėda and Lithuanian Railways. These Lithuanian companies are involved in transit shipments of Belaruskali products.

Despite this, President Gitanas Nausėda believes that cutting Belarus off from its main sources of revenue is the only way to get the country's authoritarian leader Alexander Lukashenko to stop his brutal assault on the opposition.

“We can’t impose sanctions and expect not to be affected by them. Yes, they will affect us, but that’s why they are also painful for the regime,” said Nausėda.

Read more: Lithuanian Railways may lose €19m annually due to Belarus sanctions

Calculations show that cutting economic ties with Belarus would lead to a drop of some 0.9 percent of Lithuania's GDP over three years. Among the most affected companies would be the state-owned Lithuanian Railways, which stands to lose one fourth of its cargo, and the Port of Klaipėda, whose cargo volumes would drop by some 30 percent.

The Transport Ministry will evaluate the sanction package before deciding on financial support for affected companies, says Prime Minister Ingrida Šimonytė.

“Sanctions restrict only about 20 percent of the volume of fertilizers transported via Lithuania. In other words, 80 percent remains unaffected regardless of agreements,”, according to Transport Minister Marius Skuodis.

Preliminary calculations show that Lithuanian Railways would lose some 20 million euros without Belaruskali exports.

The Port of Klaipėda is also among the affected companies. Birių Krovinių Terminalas (Bulk Cargo Terminal), a company based in Klaipėda, handles some 10 million tons of Belaruskali fertilizers. In 2020, the transit company received over 91 million euros in revenue. Belaruskali also owns 30 percent of the company's shares.

Barring EU market access to electricity produced in Belarus nuclear power plant was also among the suggested measures in the sanction package, but it was not endorsed, said Jaroslav Neverovič, a chief adviser to the president.

EU leaders also held back on imposing the toughest sanctions on Belarus – barring access to the ports of Baltic states altogether.

“However, what must be emphasised is that we don’t know everything, what actions our neighbour will take,” says Skuodis. “A good example is oil products. Oil products were redirected to Russian ports without any sanctions. Anything can happen regardless of sanctions.”

Belarus Ministry of Foreign Affairs warned the EU that it would take countermeasures, should the EU continue imposing sanctions.

It would not be the first time that eastern neighbours threaten Lithuania by prohibiting transit or export of goods, according to economist Marius Dubnikovas.

He points out that, despite Belarus having a larger population, its economy is comparable in size to Lithuania’s.

“Our position, in this case, is much stronger, since we are a gateway to foreign currency for them. Belarus will go through much more trouble, since it receives some 3 billion euros of revenue just from fertilisers.”

Meanwhile, Lukashenko continues to threaten neighbouring countries with irregular migrants and drug smuggling.

“Lukashenko’s rhetoric is oriented towards [...] his inner circle, it’s like therapy. The regime is trying to convince itself that it is still taking a stand, that it is still tough,” says Maksimas Milta, an associate analyst at Eastern Europe Studies Centre.

Lukashenko may hope for support from Putin, however, Belarus already owes Russia 8 billion dollars, and is yet to cover the loan of 10 billion dollars for the construction of the Astravyets nuclear power plant.

Following the approval of sectoral sanctions last month, Minsk announced that Raman Pratasevich and Sofia Sapega, two opposition figures who were snatched from a Vilnius-bound Ryanair flight that was forcefully redirected to Minsk, were put under house arrest. Observers believe that Belarus has taken this step as a countermeasure to the sanctions.

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