Russia-Belarus potash crisis shows need for U.S. engagement

As any avid follower of Eurasian affairs will aptly note, the interests of Russia’s state officials and business executives are inextricably linked, ‘conflict of interest’ not being a term that has gained much traction in the heartlands of the former USSR. However, when a Russian oligarch by the name of Suleiman Kerimov recently brought the billion dollar international potash industry to its knees in a move to gain larger market share for himself, President Vladimir Putin surprisingly sided with his Belarusian counterpart, President Alexander Lukashenko.

For readers unfamiliar with the product, potash is a salt that is used in fertilizer. A peculiarity of the potash market is that two groups (some might say ‘cartels’) control almost the entire global market: the Canadian Canpotex and BPC, a partnership between Russia’s Uralkali and Belarusian state potash company Belaruskali. This duopoly, which has been in place for more than 40 years, has made potash production phenomenally successful. In such a closed market, potash exporters are able to maintain artificially high prices without fearing external competition. Everybody wins, except maybe the consumers.

{mosads}This house of cards came tumbling down when Suleiman Kerimov, a reckless Russian oligarch with a history of insider trading and less than transparent investments, decided to dispense with his Belarusian counterparts in a move to grab market share for Uralklali, in which he owns a 25 percent stake. The plan was long in the making. Under Kerimov’s direction, Uralkali slowly took control of the operational side of BPC, poaching Belaruskali foreign employees and even appropriating essential equipment.

When Uralkali announced their decision to pull out of the BPC cartel in July 2013, dropping their prices by 50 percent and increasing output to maximum capacity, Belaruskali found itself floundering helplessly; the entire Belarusian economy threatening to nosedive if its potash industry folded. Across the Atlantic, Canadian potash companies fared only slightly better, with shares of Potash Corp and Mosaic Co. falling over 20 percent after Uralkali’s announcement.

On Monday, August 26^th, Belarusian President Alexander Lukashenko responded by arresting Uralkali CEO Vladislav Baumgertner for “abuse of powers” in Minsk. Belarusian authorities also issued arrest warrants for Kerimov and four other Uralkali executives. What is surprising, however, is that Putin has so far refused to step in and defend his countrymen.

There are several possible theories for the Kremlin’s reluctance to get involved in Kerimov’s latest mess. One is political infighting at the highest levels of the Russian government, with former President and current Prime Minister Dmitry Medvedev, a long-time Kerimov ally, pushing for intervention in the Uralkali affair and Putin refusing to take definitive action. While Arkady Dvorkovich, Deputy Prime Minister and Medvedev ally, called for oil supplies to be cut off from Russia, Igor Sechin, the Chairman of Russia’s state oil company who is close to Putin, traveled to Minsk to assure Lukashenko that no such thing would happen.

Another reason the Russian President may have for seemingly siding with Lukashenko instead of Kerimov concerns his ‘Eurasian Union’, a recently formed trading bloc consisting of Russia, Belarus, Kazakhstan and Armenia. The Eurasian Union was designed to act as a geopolitical counterweight to the EU and the Kremlin has been pressuring Ukraine to join over the past few months instead of signing an Association Agreement with the European Union at a summit in Vilnius this month.

If Russia is seen siding with one of their own oligarchs over a smaller country in their Eurasian Union, it could be viewed by Ukraine as a sign of things to come if they too were a member of Putin’s club. Putin himself has stated that does not want to “kick up a fuss” with Belarus over the Uralkali affair. This theory demonstrates the real fear that many Eastern European countries hold of being forced back under Moscow’s hold and the potential for the United States to propose a brighter alternative in Eurasia, whether through the EU, NATO or other means. While Eastern Europe is often seen as yesterday’s geopolitical battleground, the continuing conflicts between Russia and small ex-Soviet states show its relevance for U.S. foreign policy.

Nadeau is a European affairs consultant currently based in Brussels, Belgium.