The impact of western sanctions on Belarus

Victory Monument on Victory Square on an autumn evening in Minsk. Photo: Fire-fly / Shuttestock

The year 2022 marked a turning point for the Belarusian economy as a wave of western sanctions, imposed in response to the country’s political situation and its alignment with Russia, sent shockwaves through its economy. These sanctions targeting key sectors and entities have forced Belarus to navigate a new economic reality characterized by disrupted trade links, limited access to western markets and financial constraints.

State control, export dependence, sanction vulnerability

The impact of the West’s sanctions on the Belarusian economy cannot be fully grasped without understanding the pre-existing economic landscape, shaped by a legacy of state control, export dependence and prior experience with sanctions. This context reveals a system already struggling with inherent vulnerabilities which the 2022 sanctions further exacerbated. At the heart of the Belarusian economic model lays a deep-rooted system of state control, inherited from the Soviet past. State-owned enterprises dominate key sectors of the economy, including energy, manufacturing and agriculture. While this structure ensures a certain level of stability and social welfare, it also breeds inefficiencies, stifles private sector growth and hinders competitiveness in the global market.

This state-centric model is intertwined with a heavy reliance on exports, particularly to Russia and other members of the Eurasian Economic Union. Fuels, fertilizers and machinery make up the backbone of Belarusian exports, generating crucial revenue streams. However, this dependence on a limited number of export markets and products has rendered the economy susceptible to external shocks, political fluctuations and, crucially, sanctions.

The 2022 sanctions were not Belarus’s first encounter with such measures. Following the fraudulent 2020 presidential election and the subsequent crackdown on dissent, the European Union and the United States imposed a series of sanctions targeting individuals and entities associated with the Alyaksandr Lukashenka regime. These earlier sanctions, while less comprehensive than the 2022 measures, exposed the vulnerability of the Belarusian economy to external pressure and foreshadowed the potential for further economic isolation.

The pre-2022 economic landscape in Belarus can thus be characterized as a system grappling with three key challenges. The first included structural inefficiencies, as the dominance of state-run enterprises, while providing a safety net, hampered innovation and competitiveness. The second was related to export dependence as a reliance on a limited number of export markets and products created vulnerability to external shocks and geopolitical tensions. The third involved sanction vulnerability. Limited in scope, the 2020 sanctions exposed the susceptibility of the Belarusian economy to external pressure and foreshadowed the potential for escalating economic isolation. With this background the 2022 measures did not merely impact a stable system. They amplified existing challenges and forced Belarus to confront the consequences of its economic structure and geopolitical choices.

Dissecting the sanctions. A scalpel-like approach

The sanctions imposed on Belarus in 2022 were not blunt instruments of economic warfare, but rather precision tools, carefully calibrated to exert maximum pressure on specific sectors and entities deemed critical to the Lukashenka regime. This surgical approach, wielding sanctions like a scalpel, aimed to cripple key sources of revenue, disrupt strategic industries and, ultimately, to instigate political change.

One of the primary targets of this economic surgery was the Belarusian banking sector. By restricting access to international payment systems and limiting the ability of Belarusian banks to transact in foreign currencies, the sanctions sought to sever the lifeline of the country’s economy. This financial isolation, it was hoped, would not only hamper the regime’s ability to finance its operations but also create a ripple effect throughout the economy, disrupting trade, stifling investment and eroding public confidence.

Beyond banking, the sanctions took aim at the heart of the Belarusian industrial complex, targeting sectors that formed the backbone of the economy. The potash industry, a major source of export revenue, found itself in the cross-hairs, with restrictions imposed on the sale and transport of its products. Similarly, the petroleum refining sector, another pillar of the Belarusian economy, faced significant constraints, impacting its ability to process crude oil and export refined products.

The manufacturing sector, heavily reliant on imported components and technology, also felt sanctions. Restrictions on the supply of critical inputs disrupted production lines, forcing factories to scale back operations or, in some cases, to shut down entirely. This disruption reverberated throughout the economy, impacting downstream industries and contributing to a broader sense of economic uncertainty.

Recognizing the importance of technology in the 21st century, the sanctions extended their reach into the realm of high-tech industries. Restrictions on the export of sensitive technologies, particularly those with potential military applications, aimed to curtail Belarus’s access to cutting-edge advancements and to limit its ability to develop its own technological capabilities. This targeted approach reflected a growing awareness of the strategic importance of technology in the modern geopolitical landscape.

The sanctions, however, were not limited to broad sectoral targets. They also employed a scalpel-like precision to target specific individuals and entities deemed to be instrumental in supporting the Lukashenka administration or complicit in its actions. High-ranking government officials, influential business leaders and state-owned enterprises found themselves subject to asset freezes, travel bans and other punitive measures. This technique, often referred to as “smart sanctions”, aimed to increase the pressure on the inner circle of the regime, exploiting personal vulnerabilities and creating fissures within the ruling elite.

The effectiveness of this approach to sanctions remains a subject of debate. While undoubtedly inflicting economic pain and disrupting key sectors, the sanctions have yet to produce any desired political outcomes. The Lukashenka regime, bolstered by its close ties with Russia and its tight grip on domestic power structures, has so far weathered the storm, adapting to the new economic realities and finding ways to circumvent the most damaging effects of the sanctions. Nevertheless, the long-term impact of this economic surgery remains to be seen, with the potential for deeper, more systemic consequences to emerge over time.

The immediate impact: A transformational recession?

The targeted sanctions imposed on Belarus in 2022 did not take long to deliver a powerful blow to the nation’s economy. The immediate aftermath was characterized by a sharp contraction, marking the onset of what economists have termed a “transformational recession.” This downturn, however, was not merely a cyclical dip; it represented a profound structural shift, forcing Belarus to confront the consequences of its economic vulnerabilities and geopolitical choices.

The most immediate and visible impact of the sanctions was a decline in economic output. Key sectors, heavily reliant on exports to the West and reliant on western finance, experienced difficulties. Industrial production, particularly in industries like potash fertilizers and petroleum products, plummeted as export markets evaporated. Supply chains, already strained by the pandemic, were thrown into disarray as access to imported inputs and components dried up. Businesses, particularly those integrated into western markets, faced crippling shortages, forcing production cuts and layoffs.

The exclusion of Belarusian banks from SWIFT choked off access to foreign currency, making it difficult for businesses to conduct international transactions and repay foreign debts. The cost of imported goods, already on the rise due to supply chain disruptions, increased, further squeezing household budgets.

The economic shockwaves triggered by the sanctions were not merely abstract statistics. They translated into tangible hardship for ordinary Belarusians. As businesses struggled to cope with plummeting revenues and rising costs, layoffs mounted, pushing the unemployment rate upwards. The most vulnerable segments of society, reliant on state support and fixed incomes, bore the brunt of the economic downturn.

Beyond statistics

The immediate impact of the sanctions on Belarus was more than just a recession; it represented a forced transformation of the Belarusian economic model. The sanctions exposed the fragility of an economic system overly reliant on state control, export dependence and a close relationship with Russia. This forced transformation, while painful in the short term, could potentially create opportunities for long-term structural reforms. The need to diversify away from dependence on Russia, foster private sector growth and attract foreign investment from new partners became more urgent than ever.

The immediate impact of the 2022 sanctions on Belarus was swift and severe, plunging the nation into a transformational recession. This downturn, however, forced Belarus to confront the consequences of its economic vulnerabilities and geopolitical choices. The long-term consequences of this forced transformation remain to be seen but the Belarusian economy will never be the same.

Adapting to a new reality. Strategies for survival

The 2022 sanctions imposed on Belarus did more than disrupt the existing economic order; they forced the regime and businesses to confront its vulnerabilities and find solutions through a series of unprecedented challenges. Yet, amidst the uncertainty and hardship, a spirit of adaptation emerged. This period of upheaval became a crucible, forging new strategies for survival and, in some cases, even growth.

The most immediate and instinctive response to the severing of ties with the West was a decisive pivot eastward. Belarus, already closely aligned with Russia, deepened this relationship, relying on its neighbour as a crucial export market and a source of essential imports. This embrace, however, came with its own set of complexities. While providing a lifeline, the increased dependence on Russia raised concerns about economic and political leverage, adding a layer of geopolitical intricacy to Belarus’s economic manoeuvring.

Simultaneously, Belarus cast its net wider, actively seeking to cultivate new partnerships in Asia. China, with a key role in the global economy and financial resources, emerged as a particularly attractive prospect. This eastward expansion, however, was not without its hurdles. Navigating the complex web of international sanctions, particularly those imposed on Russia, became merely a delicate balancing act.

The disruption of established global supply chains and the sudden loss of access to western imports exposed the fragility of Belarus’s reliance on external sources. This vulnerability fuelled a renewed emphasis on self-reliance, with import substitution and domestic production emerging as key pillars of the country’s economic strategy. The Lukashenka administration, taking an active role, implemented policies designed to bolster domestic industries, particularly those deemed critical for national security and economic stability.

This inward turn also spurred a drive for innovation and technology transfer. Recognizing the need to bridge the gap with the West, Belarus sought to cultivate its own technological capabilities, striving to develop domestic or available foreign substitutes for previously imported goods and technologies. This endeavour, however, faced inherent challenges. Achieving economies of scale, attracting the necessary expertise and securing access to advanced technologies proved to be obstacles on the road to self-sufficiency.

The sanctions, while undeniably disruptive, also presented an unexpected opportunity for Belarus to accelerate its embrace of the digital economy. Recognizing the potential for growth and innovation in this realm, the government shifted its focus, seeking to leverage existing strengths in IT and software development. Efforts were made to attract foreign investment in this sector and to promote the export of digital services, positioning Belarus as a potential player in the global digital marketplace. Facilitating the growth of e-commerce and digital payment systems became another priority, driven by the need to circumvent financial restrictions and maintain the flow of trade.

Overall, the entrepreneurs who remained in Belarus, faced with seemingly insurmountable obstacles and demonstrated remarkable adaptability. They pivoted their businesses, explored uncharted markets and devised creative solutions to navigate the new economic landscape.

A test of adaptability

The 2022 sanctions on Belarus were not merely an economic reckoning. They were a profound test of adaptability that revealed both the vulnerabilities and the inherent strengths of the Belarusian businesses. The Lukashenka administration, though often criticized for its rigid control, demonstrated a degree of pragmatism. Recognizing the existential threat posed by the sanctions, it pivoted its economic strategy, deepening ties with Russia, exploring new partnerships in Asia and embarking on a path of import substitution and domestic innovation.

This top-down response, however, was only one part of the story. Belarusian entrepreneurs, facing the sudden collapse of established markets and the evaporation of foreign investment, retooled their businesses, sought out alternative suppliers and tapped into the potential of the digital economy.

The long-term consequences of this forced adaptation remain to be seen. Whether the Belarusian economy can truly sustain in this new, more constrained environment is a question that only time can answer.

Hanna Vasilevich holds a Doctoral Degree in International Relations and European Studies. Her research interests include state ideology and propaganda, identity issues, inter-ethnic relations, linguistic diversity as well as diaspora and kin-state relations.

“We suport the Belarusian Awakening’24” is a project co-financed by Solidarity Fund PL within the framework of Polish development cooperation of the Ministry of Foreign Affairs of the Republic of Poland in the amount of PLN 230,000.

This publication expresses the views of the author only and cannot be identified with the official position of the Ministry of Foreign Affairs of the Republic of Poland.

belarus, economy, Russia, sanctions, Ukraine, West