EU sanctions may lead to absorption of the Belarusian economy by Russia

The European Union introduced sectoral sanctions against Belarus for the first time. This can be a very heavy blow for Minsk. According to some estimates, the Belarusian economy could lose up to 14% of GDP. Will Moscow come to the rescue, and if so, what will it cost the Union State?

In fact, there were two packages of sanctions at once, with a difference of only a few days between each other. The fourth package was introduced on June 21, and the second on the 24th. Their goal is a collective EU response to the increasing violations of human rights, repressions against civil society in Belarus, journalists and the democratic opposition, as well as the incident with the forced landing of an Irish company flight and the detention of Roman Protasevich with his companion. In the West, the possible consequences of restrictive measures are compared to "carpet bombing". So what are they?

Fourth package

On June 21, 2021, 78 individuals and 8 legal entities fell under European sanctions in Belarus. In addition, restrictive measures also affected the Russian billionaire Mikhail Gutseriev, who has long been conducting the oil business with the republic. This package of sanctions is mainly directed against representatives of large businesses close to President Lukashenko, but it also hits the Belarusian auto industry, the famous MAZ and BelAZ. And this is a real double blow. The fact is that about 80% of the products of these enterprises go to the Russian market, but they seriously depend on the supply of European components. So, since the beginning of 2021, more than 75% of chassis, 36% of gearboxes and 22% of internal combustion engines have been supplied from the EU for the needs of MAZ and BelAZ. Minsk runs the risk of disrupting a contract for deliveries to Russia and India, which has ordered about a hundred vehicles. Experts estimate the total losses of the Belarusian car industry taking into account the risk of losing an Indian contract worth $ 500 million.

Also under the sanctions came the "New Oil Company", which supplies diesel fuel and bitumen to Ukraine. What Kiev will do now is not entirely clear. According to preliminary estimates, the Belarusian economy should have lost 7-8% of its GDP after the entry into force of the fourth package. But this, alas, did not end there.

Fifth package

The day before, on June 24, the EU Council of Ministers went on to finish off by introducing really tough sectoral sanctions. And this is very serious.

At first, restrictions were imposed on the trade in petroleum products, potash fertilizers and raw materials for the tobacco industry.

Secondly, delivery of telecommunication equipment is prohibited, of technologies, software and dual-use products.

Thirdly, financial restrictions were introduced, for example, access to the European capital market for Belarus was closed, insurance of the government and government agencies was prohibited, bank financing of projects in the public sector was stopped, etc.

It is estimated that 13% of Belarus' total exports to the European Union fall under the sanctions, and the total losses of the Belarusian economy may already reach 14% of GDP. President Lukashenko reacted to such news extremely emotional:


Well, the road to the West, at least for Alexander Grigorievich personally, is now completely closed. But what to do now, how to sort out this heap of economic problems of our only ally, who counts on us very much? Russian Ambassador to Minsk Yevgeny Lukyanov confirmed that Moscow is ready to help:


The bottlenecks are the trade in oil products and potash fertilizers, which provide Belarus with the main foreign exchange earnings. These problems will have to be addressed as a matter of priority. As for potash, the loss of the European market will be a significant but not fatal blow for Minsk. The demand for fertilizers is now growing in other parts of the world - in China, India and Brazil. The share of Belaruskali in the EU will be occupied by other players, for example, our Uralkali. But the reorientation of Belarus to other markets may face the fact that Lithuania will introduce a ban on the transit of potash fertilizers through its territory. And then President Lukashenko will have to grab his head due to the fact that he has been dragging out the diversification of export flows for so long and has avoided the proposal of Putin's colleague to transfer the transshipment to Ust-Luga. Now Alexander Grigorievich will be bound hand and foot, and he will have to accept any offer on any conditions. Most likely, for Belaruskali, everything will eventually end in a merger (takeover) with Uralkali.

It is more difficult with oil and oil products, since a significant part of them goes to the European Union, and now Brussels, following Washington, has joined sectoral sanctions against the Belarusian oil industry. If Kiev follows their example, both refineries in Minsk face the prospect of bankruptcy and a cheap purchase by the Russian side. Perhaps the change of ownership will allow these enterprises and the national oil trader to resume their work on the European market. Here a lot will depend on the principled position of the US and the EU. If they do not want to close their eyes to roundabout maneuvers, the well-functioning Belarusian oil business will face big problems.