Russia-Belarus potash dispute ignites diplomatic row
The market for potash has long been dominated by a handful of players led by the Belarusian Potash Co (BPC), a marketing venture between Uralkali and state-owned Belaruskali.
Together with Canpotex, which groups North American firms Potash Corp, Agrium and Mosaic, BPC controlled 70 percent of sales, keeping prices high for farmers.
Angered by a law passed in Belarus last year allowing Belaruskali to sell product outside the marketing venture, Uralkali quit the cartel on July 30, saying it would seek to maximize its own volumes and warning prices could fall by as much as 25 percent this year.
The recriminations, and a threat by Belarus to hold Baumgertner for at least two months, suggest there is little hope of early reconciliation.
"I doubt that this is possible," said one Russian industry source familiar with the situation, adding the charges against the chief executive were "unjust - complete and utter rubbish."
The dispute could be good news for some, however.
"I don't think Uralkali and Belaruskali can come together again. It is sure that there would be cut-throat competition among suppliers, which is good for buyers," said a senior official at a leading Indian potash importer.
Uralkali's shares steadied after sharp falls on Monday that extended its losses since mid-July to more than a quarter. Among competitors, Germany's K&S extended gains posted on Monday, when Potash Corp, Atrium and Mosaic also drew buyers.
Although Russia's reprimand amounted to a standard demarche, indicating it may not want the dispute to escalate, relations in the post-Soviet area can quickly hit the buffers.
Russia fought a brief war against Georgia, another former Soviet republic, in 2008, and it has cut off gas supplies to Belarus and Ukraine - key pipeline routes to the Europe market - in arguments before.
Sources said Prime Minister Dmitry Medvedev, who made way for Putin's return to the Kremlin last year, was furious after having been in personal contact with Minsk over Baumgertner's trip.
Playing hardball with Kerimov, whose fortune is estimated by Forbes magazine at $7.1 billion, is a risky proposition given his proven ability to mobilize political backing. It was Kerimov who forced out former Uralkali owner Dmitry Rybolovlev, the emigre owner of French soccer club Monaco, before completing a Kremlin-backed Russian potash merger in 2011.
Lukashenko's tactics amount to an attempt "to force Suleiman Kerimov into dialog", said Yaroslav Ramanchuk, head of the Mizes think-tank in Minsk, warning that the definitive collapse of the cartel would cost Belarus $1.5 billion.
The state of 10 million people, sandwiched between Russia and Poland, can ill afford such a hit as widening external deficits threaten a repeat of a 2011 balance of payments crisis that forced a 65 percent currency devaluation.
"Belarus needs additional external financing, and the most likely source remains Russia," analysts at Morgan Stanley said in a note.
Under a $3-billion loan facility granted by a Moscow-led bailout fund, Belarus has to privatize $1.2 billion in assets to qualify for the disbursal of a $440 million tranche in November.