http://www.forbes.com/sites/richardlevick/2013/09/...war-over-potash/
Games Putin Plays: The Lamentable War Over Potash
9/27/2013 @ 11:21AM
Not many people outside the industry think much about potash, unless they realize that it is a critical fertilizer ingredient that is necessary to ensure sufficient global food production. No potash, no food.
And thereby hangs quite a tale. The latest from Moscow as of this writing is that Belarus has placed one Vladislav Baumgertner under house arrest after Baumgertner, chief executive of the Russian potash producer Uralkali,spent a month in prison following his arrest in Minsk for “abuse of power.” The ploy by the Belarusians was in retaliation for the company’s withdrawal from the Belarusian Potash Company (BPC), a partnership with Belarusian counterpart Belaruskali.
Belarusian president Alexander Lukashenko and Russian President Vladimir Putin met on Monday, September 23, presumably to resolve the matter.
As hostage situations go, there’s something rather picturesque about Mr. Baumgertner’s ordeal. On August 26, the Russian oligarch was compelled to do a perp walk after personally meeting with the prime minister, then summarily ensconced in a grim concrete KGB prison that bears the intriguing sobriquet, “the American One.” And you thought Carl Icahn plays rough!
Yet these shenanigans should not obscure the serious interests at stake here –or, for that matter, a very real looming threat to the world’s fertilizer supply. On the one hand, the Uralkali pullout effectively roiled the potash market, with potentially serious impact on future supply and price stability as BPC was one of the marketing groups that control nearly the world’s entire potash supply.
In turn, not just Baumgertner, but potash itself may well have been a hostage in a game of power politics designed to advance Putin’s broader agenda of economic leverage over his Belarusian neighbors, especially as Moscow and Minsk will be finalizing a bailout of Belarus in November. Importantly, Putin has long sought to force Belarus to sell its oil refineries and natural gas pipelines in exchange for energy supply subsidies.
It may have been the Belarusians who physically ensnared the Uralkali executive but it’s hard not to see Putin’s fingerprints at every juncture. Potash accounts for 7% of Belarus’ export revenue and Uralkali’s withdrawal has threatened a 25% price dip, from $400 to $300 per ton. If that’s bad for the Russians, it’s much worse –an untenable $1 billion annual loss –for the Belarusians, but hardly the first time in modern history that a Russian government has been willing to punish its own people in exchange for perceived geopolitical gain. Meanwhile, as potash prices sank worldwide in the immediate aftermath of Uralkali’s announcement, and share value among all the major potash miners tumbled around 20%, Russia announced a Q4 42% cut in oil exports to Minsk, along with dairy and pork import reductions, in response to the BPC breakup.
According to some renditions, Putin may even have signaled approval of the Baumgertner arrest as a way to force the matter to a crisis pitch. While Russia retaliated for the arrest, Putin has not commented on it specifically, only averring that the dispute must be resolved and that the situation cannot be allowed to escalate.
Some reports from Moscow say that Uralkali’s principal shareholders overreached by withdrawing from BPC, but it challenges common sense to think they’d dare do so except in compliance with an intricate game that no one can play better than Putin. If Lukashenko is now insisting on a change in that Uralkali ownership as a precondition for resurrecting BPC, it’s a small concession for Putin and maybe even a desired end of his own, particularly if, as reported, associates like Arkady Rotenberg are prospective buyers.
The fact that Putin and Lukashenko are probably settling BPC’s fate even as we speak should be cold comfort to both potash suppliers and buyers as analysts like Denis Vorchik doubt that prices are likely to “come back anytime soon.” The breakup has been dubiously characterized as a boon to farmers amid reports of pressure from India to force lower prices market-wide.
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