By the Blouin News Business staff

The potash pawn

by in Europe.

Uralkali chief executive Vladislav Baumgartner.

Uralkali chief executive Vladislav Baumgartner. Photo Credit: Reuters/Denis Sinyakov

The atmosphere of a Soviet-era spy thriller seems to hover over the extraordinary events surrounding the collapse of one of the two potash cartels that dominate the world fertilizer industry. On June 30, the world’s largest potash producer, the Russian company Uralkali, pulled out of the Belarusian Potash Company (BPC), its marketing arrangement (for which read cartel) with the Belarusian state potash producer, Belaruskali. On August 26, its chief executive, Vladislav Baumgartner — apparently on his way to secret talks he had been invited to attend with Belarus’s prime minister — was seized at the airport of the Belarusian capital Minsk.

The charge against him is a Kafkaesque “abuse of powers” in his capacity as an executive of BPC. Baumgartner was later shown on Belarusian TV being manhandled and handcuffed. He potentially faces three to 10 years in prison if tried and convicted. Belarus authorities have issued arrest warrants for four other Uralkali executives involved in what they say is an intricate (if still unspecified) criminal scheme that has cost the country $100 million.

Baumgartner’s decision to pull out of the cartel because of a law passed in Belarus last year that lets Belaruskali sell potash outside the cartel has apparently been taken as a personal affront by Belarus’ strongman president Alexander Lukashenko, once described by a German foreign minister as “Europe’s last dictator.”¬†Uralkali has some influential friends, however. The company’s main owner is Suleiman Kerimov, a billionaire with close ties to Russian president Vladimir Putin. Its chairman, Alexander Voloshin, is a former Kremlin chief of staff.

Russia’s response to Baumgartner’s treatment has been fierce. It has demanded the chief executive’s immediate release and summoned the Belarus ambassador in Moscow to be told bilateral ties are at risk. What was a business dispute, albeit one that has shaken the $20 billion global potash market, is fast becoming a diplomatic row with Baumgartner the political pawn being held hostage.

The potential prisoner exchange is the chief executive for Russian financial aid to Belarus’s stagnating economy.¬†It seems a strange way to solicit aid, even for a country that is the last unreformed vestige of the old Soviet Union, one that gets 20% of its revenue from potash exports, equivalent to 7% of GDP. Yet Lukashenko has a history of economic and political disputes with his big neighbor. In this case, though, Russia’s harsh response to what it sees as a challenge to its prestige suggests Lukashenko has a particularly delicate game of brinkmanship to play.

However this plays out, BPC looks unsalvageable. That would be only partially good news for the other potash cartel, Canpotex, comprising the North American firms Potash Corp. of Saskatchewan, Agrium and Mosaic. Canpotex and BPC controlled 70% of global potash sales. By itself, Canpotex — which accounts for less than two-fifths of that 70% — may not be able to keep a price war from breaking out. Investors think it won’t, running down the companies’ shares in the expectation that potash prices could fall by as much as a quarter as a result of the cartels being broken. That, at least, would provide a happy ending for fertilizer-buying farmers.