Damocles Sword of Iranian Format

What you need to know about the new sanctions against the Lukashenka regime.

On August 9, the USA, Great Britain, and Canada announced the introduction of new sanctions against the regime of Aliaksandr Lukashenka, including economic ones.

Belsat has figured out which items of the new restrictions may be the most sensitive for the authorities.

New sanctions by the United States, Britain, and Canada are the largest ever restrictions imposed by these countries on the official Minsk. But the effectiveness of the sanctions packages will be different. For example, Canada introduces sectoral restrictions, but the effect of them cannot be significant due to the low level of trade relations between the two countries: according to official data, last year the trade turnover between Canada and Belarus amounted to only $ 47.9 million. The US restrictions related to the principle of secondary sanctions (meaning punishment of counterparties from third countries) are a different matter.

Secondary Sanctions Bet

On August 9, US President Joe Biden signed an executive order, which expands the scope of the order of June 16, 2006 (“Blocking the property of certain persons who undermine democratic processes or institutions in Belarus”). As follows from the statements of the White House, Biden's decree gives the Ministry of Finance broad powers to impose sanctions on individuals and legal entities working in various sectors of the economy - energy, potash and tobacco, defense, construction, transport, and other sectors. Any cooperation with companies included in the "black list" is prohibited, as is any action to circumvent the sanctions. In fact, Biden's decree defines the principles for the development and implementation of sanctions (including secondary ones) now and in the future.

Now state-owned enterprises and businesses close to the Lukashenka regime are awaiting comprehensive sectoral sanctions of the "Iranian format." This means that any company that will cooperate with state banks, state-owned businesses, or state institutions of Belarus will automatically be included in the US sanctions lists. This mechanism, in particular, can deprive state-owned companies and businesses close to the regime of the opportunity to receive loans from Russian banks that do not want to take such risks.

The key difference between the current sanctions and the previous ones is that previously companies from third countries were not prohibited from doing business with Belarusian companies that came under American restrictions. But Biden's decree fundamentally changes the situation.

“Now the sword of Damocles of financial punishment will hang over the partners of Belarusian enterprises that have come under the sanctions - no matter where they are and what currency they pay in,” notes the head of the NAU Pavel Latushka.

Potassium kick

In parallel with Biden's decree, the US Treasury Department published a new sanctions list, which included 23 people and 21 companies. The inclusion of some individuals and legal entities in this list looks more like a symbolic step (for example, sanctions against the Shock sports club of Dzmitry Shakuta), but there are also fundamentally important companies for the existence of the regime. Among them is JSC Belaruskali.

Restrictions against Belaruskali may have a serious effect primarily in the context of secondary sanctions in the “Iranian format,” since the United States is not a major buyer of Belarusian potash. The share of the United States in Belarus' potash exports in 2020 amounted to only 4.19% ($ 100.9 million). But the position of Washington may lead to the fact that companies from third countries will stop cooperating with Belaruskali.

US sanctions add to the impact of EU sectoral sanctions, which hit the entire potash industry in June, although, with some exceptions in terms of nomenclature of goods and reservations concerning the terms. In particular, the EU sanctions do not affect contracts concluded before June 25, 2021, or additional agreements required for the execution of preliminary contracts.

There is also a reservation in the US sanctions against Belaruskali: the American side gives a 120-day period to terminate all relations with the state-owned company. But this is the only delay in the entire sanctions package: all other sanctions come into force immediately.

Interestingly, the sanctions list does not include the Belarusian Potash Company, a monopoly trader through which Belaruskali exports its products. However, Brian O'Toole, a former adviser to the OFAC sanctions agency at the US Treasury Department, noted in an interview with RBC that, according to standard American practice, exported potash products will still be considered the property of Belaruskali, and, therefore, BPC will not be able to trade them.

"Lukashenka's wallets" under sanctions

Businessmen Mikalai Varabei and Aliaksei Aleksin, whom the American side calls “Lukashenka’s wallets,” as well as companies controlled by them, fell under the sanctions. At the same time, we are talking, among other things, about companies that are not formally owned by businessmen.

For example, Aliaksei Aleksin, fearing Western sanctions, signed off his key assets (Energo-Oil and Belneftegaz) to his sons Vitaly and Dzmitry back in January 2021. However, these companies were still included in the "black list" - thus, the scheme to bypass the sanctions did not work here.

Aleksin's business in the tobacco trade is tied to the Energo-Oil company, where the oligarch received unprecedented benefits from the Lukashenka regime. In particular, Energo-Oil is the exclusive distributor of the products of the Hrodna tobacco factory Neman, which also came under US sanctions. According to the US Treasury Department, this plant is "the main source of illegal cigarettes in Europe."

The census of business on other persons did not save Mikalai Varabei. In December 2020, he transferred the base asset, OOO Krasny Bor, to his top managers. The largest private Belarusian oil trader Intersevis, ZAO Absolutbank, Oil Bitumen Plant, and the special exporter of oil products New Oil Company (NOC) are tied to Krasny Bor. All four assets (plus NOC's subsidiary in Russia) came under US sanctions.

BelKazTrans and BelKazTrans Ukraine (the latter company is registered in the name of the oligarch's son) are also included in the "black list." The transit of coal was tied to these firms, as well as the supply of Russian oil products to Ukraine, bypassing the local sanctions.

Sanctions were also imposed against the Bremino Group, which is developing the industrial and logistics complex Bremino-Orsha. Due to the lack of transparency of the project and various privileges received from the state, the media call this complex "Orsha offshore." Together with Varabei and Aleksin, the co-owner of the company is Aliaksandr Zaitsau, but he is not on the US sanctions list.

Note that, earlier, EU sanctions were imposed on Varabei and Aleksin, so now these businessmen have completely lost the opportunity to legally do business in the West.

The business of the Karich brothers, Serbian oligarchs, who have been friends with Lukashenka for many years, receive various benefits from him for their business and are one of the main developers in Minsk, also fell under the sanctions.

The "black list" included the eldest son of Bogoljub Karic - Nebojsha Karic. The restrictions included Dana Holdings Limited registered in Cyprus (the basic asset of the Karic), as well as Dana Astra, Emirates Blue Sky, and Dubai Water Front companies registered in Belarus. It is known that Lilia, the wife of Viktar Lukashenka, is one of the leading positions in the Dana Astra company, and her Art Chaos gallery is located in the Dana Mall shopping center.

UK: the window to Europe closes

The UK on August 9 imposed sectoral sanctions against the Lukashenka regime, which largely repeat the EU sectoral sanctions imposed in June.

Like Brussels, London imposes restrictions on the sector of oil products, potash, access to the financial and banking markets, as well as goods used in the production of cigarettes. Although, it is not clear from the statement of the British government whether it is a question of one hundred percent synchronization of the sanctions policy. The fact is that the sectoral sanctions of the European Union had certain peculiarities (for example, not all types of potash fertilizers were banned).

Europe is not at all the main market for the sale of Belarusian potash - the main buyers are Brazil, China, India, and Indonesia. Last year, the EU accounted for only 8% of potash exports, and Britain - generally scanty 0.01%.

The situation with oil products is completely different since Great Britain is one of the main clients of Belarus in this area. Last year, Belarus exported more than $ 720 million of oil products to Britain. According to Belstat, in 11 months of 2020, about 4 million tons of oil products were exported across the EU and Britain as a whole, which is more than half of all exports in the industry.

Although, there is a statistical anomaly here: RBC notes that, according to the Comtrade database, last year Britain imported only $ 0.33 million worth of Belarusian oil products and potash fertilizers. from Belarus. That is, Britain is primarily a transshipment point for Belarusian oil products and not a market as such. However, in any case, this export window is now being closed.

Restrictions on Lukashenka's friend, Russian oligarch Mikhail Gutseriev, who came under EU sanctions in June, became an important point of British sanctions. The Gutseriev clan owns assets and property in Britain. In particular, GCM Global Energy PLC is registered in London, which is a co-owner of the Belarusian enterprise Slavkali, which is building the Nezhinsky Combine. Previously, the owner of GCM Global Energy PLC was Mikhail Gutseriev himself, but after the introduction of EU sanctions in June, he transferred his stake in the British company to his younger brother, Sait-Salam.