Lukashenka’s Regime May Face the “Iranian” Sanctions, Say Experts

A special "black mark" has been prepared for Belneftekhim.

On April 26, the U.S. sanctions against Belneftekhim and its subordinate enterprises expire. Apparently, the Belarusian authorities will not agree to the conditions of the U.S. Department of State, namely, to release all political prisoners and stop violence against the Belarusian people. It means a new period of sanctions awaits us. The already cold Belarusian-American relations will worsen, write Naviny.by.

The spokesman for the Department of State Ned Price said at a briefing in Washington D.C. on March 31, the Department of Treasury had a recommendation to resume sanctions against nine Belarusian companies.

The U.S. cannot ignore the events in Belarus after the "rigged presidential election," the violence and repressive tactics against peaceful demonstrators, and the presence of more than 300 political prisoners.

"The Department of State cannot recommend another extension of the sanctions suspension. The current suspension decision expires on April 26," Price said.

Why Belneftekhim?

We mean the companies of the Belneftekhim state concern: Belarusian Oil Trading House, Belshina, Naftan, Grodno Azot, Grodno Khimvolokno, Lakokraska, Polotsk-Steklovolokno, as well as Belneftekhim branch in the United States.

This list is not new. The U.S. first imposed sanctions against Belarus after the presidential elections in 2006 - first against officials (President Bush's order No. 13405 "Blocking of property of individuals, undermining the democratic process in Belarus"). In November 2007, guided by the same order, the U.S. Department of Treasury imposed sanctions against Belneftekhim and its subordinate enterprises.

"We are tightening sanctions against Lukashenka and his closest associates, imposing restrictions on the largest group under the control of his regime," said Adam Shubin, former head of Foreign Assets Control at the U.S. Department of Treasury.

All accounts of the Belarusian state concern and its offices in Germany, Latvia, Ukraine, Russia and China, as well as accounts of its subsidiary Belneftekhim USA Inc. were frozen. American businessmen had a piece of advice to avoid contacts with the Belarusian concern.

Many analysts speculated that Belneftekhim was selected on purpose. They said the Bush administration wanted to strike a blow to Belarus' oil production project in Venezuela in the Orinoco River Valley, which they wanted to sell to the U.S. market.

However, in October 2015, the U.S. Department of the Treasury decided to partially ease the sanctions for six months (until April 30, 2016), allowing transactions. At that time, the U.S. authorities believed that Belarus had made some progress in democracy and human rights. Besides, the U.S. decided to support the independence and sovereignty of Belarus during a difficult period of relations with Russia after the annexation of Crimea.

The decision was extended every six months. In October 2019, the decision to suspend the sanctions was taken for a year and a half. That is, the time of the last suspension ends on April 26.

Belarus risks facing "Iranian" sanctions

Some experts believe that the U.S. sanctions are nothing more than an attempt of moral pressure on official Minsk. The reference to the sanctions against Belneftekhim in 2007 confirms the opinion that those restrictions did not cause a fundamental change in the internal political situation in Belarus.

However, if the sanctions are not only unfrozen but extended - the restrictions will apply not only to companies from the Belarusian list but to any company cooperating with them - they will become increasingly tougher than the European ones and hurt the economy of the country.

Foreign companies will avoid any relations with toxic enterprises of Belneftekhim. Given the fact that a significant part of the Belarusian petrochemical industry goes to the West, this will reduce fx earnings and hit the Belarusian ruble exchange rate with all the ensuing consequences.

According to economic investment expert Daniel Kruttsinna, if the sanctions act only against Belneftekhim companies, it will not cause significant economic consequences, as the share of oil and petroleum products exports to the United States is small. It totalled 0.7% last year.

"If the sanctions are similar to the Iranian ones, the situation will be different. Then they will apply to all legal entities and organizations related to Belneftekhim. In this case, we are talking not only about reputational costs, but the losses will be economic. It's unlikely that major counterparties - oil traders in the West - will be willing to deal with the state concern," said Kruttsinna in the commentary to Naviny.by.

The loss of oil exports will have a significant impact on the country's economy - the share of oil and oil products in Belarusian exports of goods was 48% in 2020.

"There will be miserable supply alternatives. In this regard, Belarus risks ending up only with Russian partners. To export oil products to Russia? It does not need them much," Kruttsinna stressed.

The modernization of petrochemical plants is under the threat

Energy expert Tatiana Manenok also believes the effect of sanctions will depend on the range of their action.

The expert believes Belneftekhim may become so toxic that any structure in the world will refuse to cooperate with it. In this case, the sanctions can affect them as well. Moreover, this applies not only to companies but individuals.

In her commentary for Naviny.by, Manenok also draws attention to another aspect: many Belarusian petrochemical enterprises are now actively engaged in modernization. They may face problems when buying equipment and technology.

"Oil refineries now buy new equipment for modernization of key stages from multinational companies in the European market. Many of them aim to export products abroad and should have new technology to compete on world markets. It's a very negative signal for them. If the sanctions are unfrozen, there will be certain problems for cooperation, partnership, first of all, equipment imports," Manenok says.

On the other hand, Belarusian companies already have work experience under sanctions. They have learned how to find ways to bypass the restrictions by acting, for example, through intermediaries.

In March 2014, the government withdrew the Belarusian Potash Company from the state concern, explaining it as a desire to manage the company directly, Manenok reminded: "Of course, this step was justified to avoid the U.S. sanctions".

However, the renewal and extension of sanctions is "a very bad story" for Belneftekhim, believes the expert.