After Belarus dictator Alexander Lukashenko hijacked a passenger plane to seize an opposition journalist, the Ukrainian leadership joined the Western world in condemning Lukashenko.
This worsened Ukraine’s already strained relationship with its authoritarian neighbor, sending it into uncharted territory.
Belarus went into attack mode, starting a trade war with Ukraine that experts say the northern neighbor of nearly 10 million people can’t win.
Starting on June 5, Ukrainian producers of agricultural machinery, foodstuffs, paper-based material, ceramics, bricks, furniture and packaging will require special individual licenses to have access to the Belarusian market.
Furthermore, Belarus began unofficially restricting exports of oil products produced by its Mozyr refinery. Belarusian authorities cite plant modernization as the primary reason for the decrease in exports to Ukraine, but most people believe it was a political decision.
Belarus’ attack on bilateral trade comes days after Ukraine closed its airspace to Belarus planes and banned imports of electricity from the neighboring country.
The decision came as a response to the hijacking of a Ryanair plane by Belarus authorities and the abduction of opposition journalist Roman Protasevich who was onboard.
The trade war will take a heavier toll on Belarus’ Soviet-style economy, with a gross domestic product of about $63 billion.
Ukraine may experience a shortage of oil products in the near future, says Serhiy Kuyun, the head of oil and gas consultancy A‑95. But the damage will be worse for Belarus.
“Belarus is much more dependent on Ukraine than we are on them,” Kuyun said. “Belarus’ whole oil refinery industry was focused on exports to Ukraine.”
Belarus’ economy is expected to lose billions of dollars in revenue if the country breaks ties with Ukraine, one of its main trading partners.
Yet, the confrontation appears unavoidable because of vastly diverging political interests. Ukraine is heading West while Belarus, or at least its leadership, is content to stay in Russia’s orbit.
Ukraine is set to move forward with personal sanctions against Belarus’ top government officials, while Belarus has been testing the possibility of recognizing Kremlin-occupied Crimea as part of Russia, Minsk’s patron and one of its only allies in the world.
Interdependency
Ukraine and Belarus have always held strong economic ties.
Despite Lukashenko’s long authoritarian rule of Belarus, Ukraine didn’t question his legitimacy prior to the fraudulent presidential election on Aug. 9, 2020, in which Kyiv didn’t recognize Lukashenko’s declared victory.
An interconnected system of pipelines and electricity cables between the two countries has largely benefited Ukraine, covering its energy shortages by way of Belarus. At the same time, Belarusian businesses generated vast profits in the Ukrainian market.
Ukraine is one of its neighbor’s top trading partners, accounting for 11% of Belarus’s exports and 4% of its imports. In the first quarter of 2021, Ukraine exported $306 million worth of goods to Belarus and received $864 million worth of goods in return.
More than half of Ukraine’s imports from Belarus were oil products, generating $511 million for Belarus. Ukraine has been dependent on
Belarusian oil products, receiving 35% of diesel and 50% of bitumen from its northern neighbor.
According to Encorr, a news outlet focusing on the energy sector, gasoline imports to Ukraine from Belarus in June decreased sixfold.
In the short term, Ukraine might experience shortages of bitumen, the main component of asphalt, and gasoline and diesel, which fuel cars.
The decrease in bitumen imports will hurt President Volodymyr Zelensky’s most cherished project, “The Big Construction,” which has been set to promote the president through nationwide construction projects.
Under this project, in 2020, Ukraine constructed 4,200 kilometers of interregional roads. Out of all bitumen used for these projects 540,000 tons, or 45% of the total, came from Belarus.
In 2021, Ukraine was expected to build an additional 4,500 kilometers of roads.
“It’s hard to get so much bitumen, yet possible,” said Kuyun.
Ukraine’s only major oil refinery is situated in Kremenchuk and is owned by billionaire oligarch Ihor Kolomoisky. The plant can cover Ukraine’s needs in gasoline but not its needs of bitumen and diesel, making Ukraine rely on imports.
Ukraine’s only option now is to ship bitumen from Turkey and Greece via Ukrainian ports.
Deputy Head of Ukraine’s Presidential Office Kyrylo Tymoshenko on June 2 said that Ukraine may invest in the construction of a new oil refinery to cover Ukraine’s needs in bitumen.
“These are large investments,” he said.
Kuyun says it could cost $5–7 billion and is unfeasible. The same goes for diesel.
Despite a strong dependency on imports from Belarus, in the long run, Ukraine can diversify procurement. In May, Ukraine increased imports of diesel from Lithuania, Hungary and Turkey.
“We can survive without Belarus,” says Kuyun.
Soviet theme park
The situation looks much worse for Belarus.
The country’s main exports are oil products, fertilizers, chemicals and vehicles. All of them are expected to fall under sanctions, pushing Belarus to the brink of default.
Losing Ukraine as a reliable trade partner, and over $3 billion that comes with it, will only accelerate the economic decline.
After Lukashenko falsified presidential elections in August and began cracking down on peaceful protests, Lithuania and Latvia banned imports of electricity from Belarus.
Unsurprisingly, Lukashenko decided to push Belarus deeper into an economic crisis by moving the country’s export shipping routes from the nearby Lithuanian port of Klaipeda to the northern Russian port of Ust-Luga.
Without Russian financial assistance, Belarusian exports through Russia are unprofitable.
On April 19, the U. S. Treasury announced sanctions against nine Belarusian state-owned companies, including Naftan, the largest of Belarus’s two oil refineries. All companies are banned from doing business with Naftan starting June 3.
According to Ursula von der Leyen, the head of the European Commission, the EU is working on sanctions against individuals involved in the hijacking, businesses that finance Lukashenko’s regime and Belarus’s aviation sector.
Belarus’ Belavia Airlines has been banned by 21 countries out of the 30 countries it serviced. Belarus is also now expected to lose at least $50–70 million in tariffs after turning into a European no-fly zone.
“Sectoral sanctions will probably take a bit longer, but the aim is to have it done before the EU summer break in August,” wrote Rikard Jozwiak, an editor at Radio Free Europe/Radio Liberty.
Politics before economy
Despite imminent economic consequences, Lukashenko is looking to raise the stakes.
In early June, Lukashenko began talking about direct flights between Minsk and occupied Crimea. He also proposed to hand over kidnapped
Protasevich to Russian-led militants fighting in eastern Donbas.
“We didn’t start this debacle, so it isn’t on me,” said Lukashenko referring to Ukraine’s decision to ban flights to and from Belarus.
The curtailing of bilateral relations now seems imminent.
According to Deputy Foreign Minister Yevhen Yenin, Ukraine has prepared sanctions against Belarus’ top officials and is ready to impose them as soon as the decision is approved by the National Security and Defense Council.
“If even one Belarusian plane ends up in occupied Crimea, sanctions will be inevitable with all the ensuing consequences,” First Deputy Foreign Minister Emine Dzheppar told Interfax.
