The US and UK unveiled sanctions on Belarus on the one-year anniversary of fraudulent presidential elections and following several recent cases of repression. The US targeted the state-owned potash producer, Belaruskali, and refined oil products among 21 firms and 23 individuals with ties to President Alexander Lukashenko, while the UK penalties also prohibited purchases of bonds issued by the Belarusian state. These sanctions followed the EU’s earlier sanctions on Belaruskali and other sectors. Opposition leader Svetlana Tikhanovskaya recently met with both US President Joe Biden and UK Prime Minister Boris Johnson, calling on them to ramp up sanctions. In retaliation, the mayor of Minsk ordered retailers to take Western consumer brands off the shelves.

Our View

These sanctions on Belarus—affecting about half of Belarus’ exports and ~10% of GDP—mark a clear escalation of the crisis with Belarus, eliminating any possible improvement in ties with the West and forcing Lukashenko into complete political, financial, and economic dependence on Russia. With the West increasing the financial burden on Moscow notably, now estimated at more than US$ 5 billion annually to support the regime, the Kremlin is increasingly frustrated with Lukashenko and eager for his eventual removal from power. Unfortunately, the gridlock will continue for some time, as no agreeable exit path for Lukashenko exists; Moscow is the only power able to remove the obstinate Lukashenko, but it fears the possibility of a pro-Western leader chosen in elections or a popular revolt against the installment of a Moscow-approved leader unchosen by the domestic population. Such an increasingly tense atmosphere raises risks of a mistake or miscalculation, as well as an expansion of the crisis to involve Russia and the West, particularly with the large Russian Zapad military exercises coming in September. 

Business Implications

Western governments are clearly discouraging investors from doing business with the Lukashenko regime, while the Belarusian government itself is increasing pressure as well. MNCs need to evaluate their exposure to Belarus, both in terms of sales and marketing. With the political situation to worsen, and with no discernible end in sight, reputational risks will rise while state pressure accelerates and purchasing power weakens as the economy deteriorates. Firms should strengthen relations with local partners to understand their risk exposure amid the fluid business environment.

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