Belarusian-Russian Economic Dependency and Trade Wars: Is There a Contradiction?

Two stories involving Belarus that have been unfolding over the past few weeks appear to contradict each other on the surface. These are the growing economic dependency of Belarus on Russia on the one hand, and the ongoing trade wars between both countries on the other hand. But taken together, they illuminate something much deeper about its present political-economic situation.

According to Pavel Matsukevich, a senior expert at the Center for New Ideas (an improvised think tank of a group of recently exiled Belarusian analysts), after August–September 2020, Minsk turned away from the policy of situational neutrality it had pursued at least since 2014. That policy had contributed to gradually improving Belarus’s international image. But, Matsukevich argues, the Belarusian authorities no longer position Belarus as a territory where the interests of the West and the East converge. The invented new role for Belarus is that of an outpost of Eurasianism on the border of civilizations—the first area to absorb the blow of the insidious West (New Belarus, October 22).

In its turn, the collective West has imposed economic sanctions on Belarus (see EDM, May 18, June 30, July 7), and a reduction in the level of mutual diplomatic presence followed (see EDM, October 13). Thus, Belarus’s embassy in Canada and the consulate general in New York were closed; whereas Minsk opened up a diplomatic mission in Zimbabwe and several consulates general in Asian countries.

These changes notwithstanding, the Belarusian government feels confident. The main sponsor of this confidence is Moscow, which cushions the risks of sanctions and isolation. Integration with Russia became a matter of survival. Half of Belarus’s merchandise exports goes to Russia. In 2021, Russia’s share in Belarus’s overall trade exchange exceeded the combined share of the remaining 99 countries from the latter’s top 100 trading partners. It is with Russia that the main schemes for bypassing sanctions are associated. The real process of integration, Matsukevich continues, is going on behind closed doors. Significant advances have taken place in the military sphere. Training and combat centers have been created, under which Russian combat aircraft and air defenses are deployed in Belarus (New Belarus, October 22).

The second pillar of Belarusian President Alyaksandr Lukashenka’s rule is extracting benefits from the Moscow-led Eurasian Economic Union (EEU) and Collective Security Treaty Organization (CSTO). For the Belarusian authorities, the importance of routine events within these formats has grown, since they can show that international isolation is not working (New Belarus, October 22).

The Center for New Ideas analyst also contends that the Belarusian authorities are actively looking for sources of well-being in the far abroad—the third pillar of the regime’s international legitimacy. Minsk has announced a “pivot to Asia.” From Turkey to Japan, the Belarusian “regime” is recognized both de facto and de jure. And the recent appointment of a new ambassador of Belarus to Seoul testifies to the issuance of an agrément by the South Korean side and, therefore, the Belarusian president’s legitimacy in the eyes of South Korean government.

Still, Matsukevich maintains, the key question for the fate of the Belarusian “regime” is maintaining Russia’s support. On this score, the Russian ruling elites experience no dilemma. The Kremlin simply cannot refuse to help Lukashenka, since his fall is not in Russia’s interests. The Kremlin is obviously the ultimate beneficiary of the confrontation between Belarus and the West. The West, however, has not yet demonstrated its readiness to revise its policy in favor of a more subtle game—the intent to further toughen sanctions remains.

Minsk’s main practical concern is to secure trade with third countries and to immunize key export positions and partners to the threat of sanctions. Most probably, for this reason, some 15 percent of Belarusian exports to Russia is already unaccounted for. One of the key questions is the fate of the potash trade. A variant of bypassing the sanctions against Belaruskali (a potash company) is for Russia to increase the purchase of Belarusian products but then export Russian potassium to markets that were previously controlled by the Belarusian side. It is likely that as the sanctions grow, the entire transit of the “sanctioned” trade of Belarus with third countries may go through Russia, as has already happened with refined oil products (New Belarus, October 22).

The problems of the banking sector and the supply of technological equipment to Belarus most likely are also solvable in the interests of the Russian side, the expert writes. Moreover, methods already tested in Crimea are being reapplied to the Belarusian case: international deliveries through Russia, the transfer of all operations with Belarus to the category of domestic trade, and the arrival of Russian banks without international operations.

In all likelihood, Moscow will continue to stimulate the deterioration of relations between Minsk and the West until Russia becomes the conduit of all Belarusian interests, opportunities and businesses, concludes Matsukevich (New Belarus, October 22).

It is against this backdrop that the continuing trade wars between Russia and Belarus ought to be viewed. For example, Russia’s Transneft complains that its daughter company in Belarus, in charge of transporting Russia’s refined oil products to the West, is overwhelmed by new Belarusian taxes. The aim, the local Transneft subsidiary alleges, is to bankrupt this company and then have the Belarusian state buy it up (Officeline, October 14). Moreover, Minsk has rescinded the 2011 regulation that had eliminated all tariffs on Belarusian importers who re-exported their products to Russia. This change has almost killed the re-export of flowers from Ecuador and the Netherlands that used to enter Russia via Belarus (Ex-press, October 20). Multiple contradictory observations exist regarding what this decision may mean for other re-exported products (RBC, August 26; Sputnik.by, September 16). Also, Belarus accounts for 6 percent of the world’s export of dairy products, with 80 percent of its dairy exports (worth $2 billion) going to Russia. However, Russia’s progress in cheese production inevitably aims to shrink Belarusian competitors’ market share. Currently, Belarus is able to sell cheese cheap because milk whey, one of the waste products of cheese production, ensures a high profit margin in place like China, but this situation may change (Sputnik.by, October 20).

Taken together, one has to understand that the first of the two stories, i.e., the growing dependency on Russia, is incomparably bigger than the second one, i.e., trade wars. Moreover, the solution to the latter may be subordinated to the former by effectively transforming Belarusian production units into subsidiaries of the Russian ones with the aim of bypassing Western sanctions.