Final Years for Lukashenka?

Bottom Line: Belarusian leader Alexander Lukashenka may not make it past 2015 presidential elections because he's chosen to take on Russian oligarchs and Russia will hit back by destroying the country's economy to ensure Lukashenka's defeat. The answer is in the potash.

Analysis: This is all about Lukashenka's attempt to re-take control of vital sectors of the economy from Russian oligarchs. Most specifically, it's about the Russian-owned potash giant Uralkali Corporation and the arrest of its general director, Vladislav Baumgartner. The Russian media is all over this, with detailed looks at how the economy of Belarus has crumbled (based on what they say are the real indicators, rather than Lukashenka's propaganda), and what's in store this year and next. The focus is on energy indicators, and they claim that Belarus' energy production dropped from 39.5 billion kw-hr in 1990 to 30.8 billion kw-hr in 2012. While Lukashenka claims that GDP in 2012 reached 193% of the 1990 level, the Russians claim it is only 78% of the 1990 level. Oil processing is believed to have declined from 39.422 million tons in 1990 to 21.667 tons in 2012. Mineral fertilizers--the country's second biggest export business--are only at 79% of their top levels during Soviet times. The Russian argument is that Belarus needs its big neighbor to survive-or more precisely, that Lukashenka needs Moscow and the game he is playing with Russian oligarchs will end badly. Russian oligarchs own Belarus, and it will be no easy task loosening their grip. Russia has a million ways to retaliate-from banning Belarusian dairy and meat exports to reducing oil shipments to Belarus.

Recommendation: If Belarus does not heed calls to release Baumgartner, the Russian response will be economically devastating to Belarus and the game right now is to use the Russian media to warn Lukashenka that his days as one of the last dictators are numbered.  But Belarus is standing firm, and this is causing some interesting commotion inside Uralkali. While the CEO is languishing in detention in Belarus, the company's billionaire shareholder, Suleiman Kerimov, which controls 21.7% of Uralkali, is talking about selling his share. There is also a Belarusian warrant for Kerimov's arrest. Kerimov has suggested that he may sell his stake in the company in order to diffuse the situation and secure the release of the CEO. It is more likely a stunt by Kerimov to take the heat of his own arrest warrant, and it may not actually result in a sale of his stakes (valued at $4 billion). Lukashenka is standing so firm on this because Uralkali in July said it was withdrawing from its partnership with Belarus and stepping out on its own, planning to cut prices to increase volume. This would be devastating for Belarus, which has been surviving on inflated, cartel-style potash prices which translate into about 7% of the country's export earnings. Baumgartner was charged with abuse of power. The question Russia has to answer right now is whether any new punishment it can dole out will be worse that Belarus losing this potash game. Moscow isn't sure, and that's why it's sending warnings about Lukashenka's longevity through the Russian media. Russia may have overplayed its hand, but whether Lukashenka has the capability to take advantage of it before 2015 is questionable at best.