New EU sanctions against Belarus: What will be their economic effect?

28 June 2021

Restrictions on exports of petroleum products will affect the economy at most.

By Rumen Dobrinsky
photo credit: iStock.com/Zeferli

  • On 24 June, the Council of the EU introduced a new set of sanctions against Belarus
  • For the first time they are targeting specific Belarusian industries such as petroleum products, potash fertilizers and tobacco-related products
  • Restrictions on exports of petroleum products will have the most tangible negative impact

On 24 June the European Council introduced a new set of sanctions on Belarus following the forced landing of a Ryanair flight on 23 May 2021 and the arrest of a prominent opposition activist. The new economic sanctions include, among others, a ban on the supply to Belarus of specialised technological equipment and dual-use goods and technologies for military use as well as restrictions on the exports of Belarusian petroleum products, potassium chloride (“potash”), tobacco and tobacco-related products. On the financial side, Belarus’ access to EU capital markets will be further restricted, while the European Investment Bank will stop funding projects in the public sector. Other western countries are expected to follow suit with similar economic sanctions.

What makes these sanctions different from similar actions taken in the past? The latest round includes “sectoral sanctions” that target specific economic sectors and industries, without necessarily linking them to personalities that are believed to be responsible for human rights violations or other oppressive measures of the regime. Consequently, it is expected that they will have a much more negative impact on the Belarusian economy. In the following paragraphs we shall try to present a rough sketch of the expected effects of the new sanctions.

By all accounts, the restrictions of exports of petroleum products will have the biggest impact. In 2020 Belarus exported petroleum products to the EU worth USD 1.1 bn which amounts to 30.5% of all the exports of such products and 3.9% of the value of Belarus’ total exports of goods. The UK is another key market for Belarusian petroleum products. Assuming that it would also join the sectoral sanctions, the losses would increase further. In 2020 combined Belarusian exports to the EU and the UK amounted to USD 1.8 bn, representing 50% of Belarus’ total exports of petroleum products and 6.4% of the country’s total exports of goods. Furthermore, one could safely assume that in the case of an entire stop of shipments to the countries imposing sanctions, the shock would be very substantial as it is unlikely that Belarus could divert the export of petroleum products to other markets in the short run.

The case of potash is somewhat different. In 2020, Belarus exported potash worth USD 0.3 bn to the combined market of the EU, UK, USA and Canada, which accounted for some 12% of total potash exports and a little more than 1% of Belarus’ total exports. Belarus, together with Russia, is among the world’s main potash exporters and one could assume that it would be easier to divert the sanctioned exports to other markets.

Tobacco and related products are not Belarus’ main export goods, so the effect of sanctions will be limited, although there is anecdotal evidence of non-negligible smuggling to neighbouring EU countries.

Regarding financial sanctions, Belarus was already de facto cut off from international financial markets after the repressive measures following the 2020 presidential elections. Hence, their additional effect will be only marginal.

Summing up, the new sectoral sanctions should have a perceptible negative economic effect but they will by no means be deadly for the Belarusian economy. Even in the case of petroleum products, it cannot be excluded that over time, Belarus would be able to successfully divert some of these flows to other markets. One plausible scenario would be that at least some products could be exported to Russia for further re-export to Western Europe.

There is another peculiarity concerning the communication of sanctions by the European Council, namely, the language which is somewhat vague regarding the sectoral sanctions. The statement does not explicitly refer to a ban on EU imports of the sanctioned Belarusian products but rather says that trade in these products will be “restricted”. So it remains to be seen, to what extent the sectoral sanctions will be effective in terms of cutting off altogether selected Belarusian exports to Western Europe or whether some leaks will remain.


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