Belarus Strategy - No Material Threat from New Sanctions

Yesterday, the EU, in coordination with the US, UK, and Canada, imposed new sanctions on Belarusian entities and individuals that are believed to be responsible for the recent migration crisis on the border with Poland. The US Treasury has also announced measures against Belarus's potash industry and sovereign debt. While the announced measures were tougher and broader than expected (based on comments by EU officials earlier this week), we do not expect them to materially change the situation in the economy or with the country's ability to finance its debt.> US follows EU lead, places sanctions on sovereign debt. The US agency OFAC announced restrictions on dealings in new Belarusian sovereign debt in the primary and secondary markets. Thus, it has aligned US restrictions with those that were imposed by the EU and the UK this summer. This is a rather technical change, since new Eurobond issuance for Belarus has been effectively shut down for months already. Speaking more concretely, the restrictions imply that US entities are prohibited from participating in all transactions involving the provision of financing for, and other dealings in new debt with a maturity of greater than 90 days issued on or after December 2, 2021 by the Belarusian Finance Ministry or the Development Bank of the Republic of Belarus. In a separate statement, OFAC underscored that all other activities with the sovereign and quasi-sovereign debt of Belarus remain permitted. In its FAQ related to Belarus sanctions, OFAC separately notes that the new restrictions do not prohibit transactions in debt issued prior to December 2, 2021 (assuming no modifications in the terms after this date). This means that there are still no restrictions on existing debt from the US, UK or EU. > US sanctions on potash and defense industries expanded. The Treasury has also added 20 individuals and 12 entities to its sanctions list. The newly sanctioned entities include two trading representatives of previously sanctioned Belaruskali (Belarussian Potash Company and Agrorozkvit), as well as an important exporter of defense goods (Beltechexport). Interestingly, the SDN list was also extended to include Slavkali, a potash project started by Mikhail Gutzeriev, who was added to the EU sanctions list in June. Slavkali will become only the second potash producer operating in Belarus when its production facilities become operational in 2023.