Austria and Belarus (3/3): The (In)effectiveness of EU Economic Sanctions

Chronicle from Belarus
Martin Malek

Belarus' most important trading partners are the non-EU countries of Russia, Ukraine and China. EU countries Germany, Poland and the Netherlands follow directly behind. Around 150 German and almost 500 Polish companies have invested in Belarus and often operate joint ventures there.[1]

In June 2021, the EU declared sectoral sanctions against Belarus for the first time, targeting specific sectors of the economy. They were supposed to hinder trade in oil products and potash salts, which is one of Lukashenko's most important sources of income: Belarus is the world's third-largest producer of potash, which is needed for the production of fertiliser.[2] But ‘[…] contracts signed before the 25th of June 2021 are excluded from sanctions, and the big potash producer Belaruskali operates with long-term contracts. […] for unclear reasons, the EU specification of potash sanctioned covers only 15-20% of Belaruskali’s production’.[3] Neither Belaruskali nor the Priorbank were included in the EU's fifth sanctions list of December the 2nd, 2021.[4] According to estimates by the credit rating agency Standard and Poor's in the summer of 2021, the EU measures against Belaruskali will affect a negligible 0.5 to 0.7 %  of its exports: they go mainly to Brazil, China and India, which do not enforce EU sanctions. Moreover, the EU sanctions did not even restrict the transit of potash through EU member Lithuania, specifically the port of Klaipeda.[5] On January the 12th of 2022 however, Vilnius announced the termination of the contract allowing the transportation of Belarusian potash via Lithuanian rail. The contract with Belaruskali will expire on February the 1st, 2022.

If Belarus’ statistics office Belstat is to be believed, Belarusian exports of goods to the EU increased by 96.1 per cent in the first three quarters of 2021 compared to the same period in 2020. According to EU data, imports from Belarus also increased significantly from January to August 2021, but only by 58 per cent, a figure that may be explained through creative accounting aiming to prove that EU sanctions are ineffective. Although the large increase was partly due to the low level of the Covid 19 pandemic in 2020, even compared to the first half of 2019, Belarusian exports as a whole increased by 10 per cent. As a result, Belarus' GDP officially grew by 2.7 per cent by the end of September 2021 – much more than had been expected given the crisis that followed the rigged 2020 presidential election.[6]

This could be explained by several circumstances. As mentioned above, the EU sanctions only apply to contracts after June 2021; and wood products and metals, which are in high demand globally and in the EU during the post-pandemic economic recovery, are not concerned at all. However, some effects could still be observed as of November 2021. For example, a Chinese investor allegedly pulled out of the construction of a new potash combine, and the rating agency Fitch withdrew its rating of two Belarusian state banks. Companies from the tobacco and car industries are also likely to lose profits, as they are now cut from their EU suppliers. Because Belarus has not published any data on the affected economic sectors since the imposition of the sanctions, such consequences have not yet been visible. It is possible that the sanctions will have even more of an impact in the coming months. At the beginning of December 2021, new US sanctions also came into force, targeting Belaruskali, among others. For 2022, the World Bank therefore expects Belarusian GDP to shrink by 2.8 %.[7] But this will not threaten Lukashenko's rule.

The relation between Belarus and the German economic superpower in the first three quarters of 2021, compared to the same period in 2020, were also interesting: as shown by data from the German Federal Statistical Office, exports of goods from Belarus to Germany grew by almost 51 % to more than 603 million euros. German exports to Belarus, in turn, grew by around 6 % to almost 1.1 billion euros (in September 2021 alone, they increased by more than 12 %). The German Eastern Business Association (Ost-Ausschuss der Deutschen Wirtschaft) explained this phenomenon, on the one hand, by the general recovery of Belarusian foreign trade from the slump during the Covid 19-related crisis in 2020, and, on the other hand, by the fact that only certain groups of goods are affected by the 2021 sanctions. According to the German Eastern Business Association, the strong increase in German imports dates back to the second quarter of 2021 – that is before the implementations of the sanctions. In addition, raw material prices for wood and metals, for example, have skyrocketed.[8]

A well-known Hamburg weekly called the EU sanctions against Belarus ‘half-hearted anyway’.[9] And a Vienna-based newspaper opined that the EU's four sanctions packages against Belarus between August 2020 and June 2021 were designed ‘in such a way that neither Belarus' key industries nor Belarusian trade with EU states were harmed’.[10] It was therefore not surprising that the Belarusian opposition called for tougher measures. Vyachorka said that Austria, as one of the largest investors in Belarus, was particularly called upon to take ‘strong steps’. This was also conveyed to federal chancellor Schallenberg and minister of foreign affairs Michael Linhart during talks in Vienna, to no avail.[11] In mid-December 2021, Tikhanovskaya said in Brussels the sanctions had too many loopholes, deploring that ‘Lukashenko and his cutthroats [...] know how to bypass sanctions’.[12] One of them, she elaborated, was trade in potash fertiliser,

Austria's stance raises, here again, additional questions. For example, in its Country Report 2021 on Belarus, the Economic Chamber refers in a single place to the sanctions against the country, only to state that it could well be an interesting production location for Austrian companies due to its ‘favourable geographical location and relatively low factor prices (wages, energy costs, etc.)’. This clearly shows the Chamber considers the sanctions merely as an obstacle to normal business activity. The report does even mention Lukashenko’s regime, limiting its description of the country to platitudes as the following:

In the Belarusian population, as in Russia, superstition is deeply rooted and it is important to refrain from some behaviour that is not uncommon in Austria. For example, one should not shake hands through the door, not congratulate someone on their birthday the day before and not present knives, as such actions bring bad luck and discord.[13]

The Western Lack of Understanding of Belarus (and Russia)

Western European – including Austrian – politicians, diplomats, pundits and lobbyists, do not understand Lukashenko and his patron Putin. They do not get that any attempts of a de-escalation will lead to the exact opposite effects, despite the fact that they would be hard pressed to cite a single example where a dictatorial regime has reacted positively to such accommodating strategies. One such example is German chancellor Angela Merkel's phone calls to Lukashenko – whom the EU does not even recognises as president of Belarus –  on November the 15th and 17th of 2021.[14]

Put a little differently: There is not a single case in modern history where democracies have successfully used appeasement in their dealings with dictatorships. Lukashenko and Putin are not different, and thinking otherwise is, in the words of Albert Einstein, "doing the same thing over and over again and expecting different results".

Slogans like ‘keeping channels of conversation open’, ‘don't let threads of conversation break’, ‘stay in dialogue’, ‘build bridges’, etc. have only made dictatorships more self-confident because they see de-escalation as symptomatic of democratic weaknesses. And autocrats like Lukashenko and Putin want consistently to exploit such a weakness in their hybrid warfare against what they consider as a decadent, declining, weak, eternally divided, West. Thus, Putin’s reaction to the passivity of this West in the face of its aggression of Georgia in 2008 was the annexation of the Crimea and the unleashing of a war in the Donbass in 2014.

Even more deluded is the persistent idea that Putin could have a moderating influence on other dictatorships like Lukashenko’ or Bashar al-Assad’s in Syria: why would Putin bother when their actions are fully in line with his own interests? Even after twenty-two unsuccessful years, numerous Western politicians nevertheless hold to this idea. This includes – again – Angela Merkel, who turned to Putin in November 2021 to address the migrant crisis at the Polish-Belarusian border engineered by Lukashenko, with news headlines clamouring that: ‘Merkel asks Putin to intervene in Belarus’. Putin was expected to ‘exert influence on the authoritarian government in Minsk [...]’,[15] being once again perceived as the solution to a problem likely of his own making. He of course equivocated – Merkel was referred to ‘Minsk’, Lukashenko that is. On the same day, the 10th of November 2021, and according to the Russian ministry of defence, two Russian Tu-22M3 fighter jets flew over Belarus; followed by two Tu-160 nuclear-capable bombers the day after.

Merkel did indeed call Lukashenko, who could thereby feel fully recognised not only as the President of Belarus, but also as a legitimate negotiating partner. Belarusian-born political scientist Olga Dryndova (University of Bremen), could only deplore that Lukashenko’s new-found status will only demoralise the Belarusian pro-democracy movement. Even if such legitimisation of Lukashenko was not intended – "in Belarusian state media it is definitely presented that way."[16]

The policy of many democratic states to allow private investments even within authoritarian regimes is absolutely counterproductive: these regimes interpret this as an exploitable weakness on democracies’ part – which makes them even more aggressive.

Despite the 2020 and 2021 sanctions, the EU's trade volume with Belarus increased. Sanctions should be thus drastically tightened if they are to have any effectiveness. This is likely deliberate, since Brussels fears that this is only going to escalate tensions with Putin’s Russia, something the EU wants to avoid at all costs. This is the inevitable consequence of the Russia-first policy conducted by Brussels for three decades, despite its chronic lack of success. Putin's war chest would be far less well filled if the EU and its member states had gradually reduced their dependence on Russian natural gas and oil – for which there have had been plenty of time – Putin rules Russia since 1999 – instead of expanding it even further through projects like Nord Stream I and II – in which Austria is also involved. This should have been an absolute necessicty for many additional reasons – environmental protection, for instance – and was also called for by numerous critical analysts, but Brussels, Berlin and Vienna stubbornly turned a deaf ear, convincing themselves, the public and the media that Nord Stream was a ‘purely economic project’[17], a ‘private enterprise’,[18] and – as the German federal chancellor Olaf Scholz called it – a "private endeavour",[19] that in the words of Josep Borrell, EU's representative for foreign affairs, had "nothing to do with politics". Austria could not even commit to cancel the project in the case of a direct Russian aggression of Ukraine.[20]

Conclusions, Recommendations and Outlook

Lukashenko is in a peculiar way an integrated element in Austria with a broad and highly heterogeneous circle of sympathisers ranging from the Communist Party to the Austrian People's Party-affiliated Chamber of Commerce and to the Freedom Party. Apart from him, only Putin exerts such a power of attraction.

It would be therefore wrong to conclude that Lukashenko is the only culprit: Austria is responsible as much. Lukashenko desperately needs foreign capital for the survival of his regime, and Austria has been providing it – of course together with other countries, primarily Russia, and international financial organisations (such as the International Monetary Fund[21]) – for many years.

Austria is the last country that will offer even symbolic resistance to Lukashenko's and Putin's political, military and economic expansion. The argument that it is too small to do so is anything but convincing: Lithuania is still considerably smaller than Austria, but in November 2021 it still allowed Taiwan to open a representative office in Vilnius. A tiny Baltic republic can therefore resist pressure from the Chinese global superpower. What is Austria doing in the meantime? Offering unwaivering support for Nord Stream II, thus ensuring that Putin's coffers will be well-stocked in the future; building an opera house in Russia-occupied Crimea through the Austrian architectural firm Coop Himmelb(l)au is; and violating the EU flight ban on Belarus. It is little consolation that major companies outside of Austria have also violated existing sanctions or are massively suspected of having done so – for instance, the German company Siemens delivered gas turbines to the Russian-controlled Ukrainian Crimea in 2016.

Foreign policy, especially for smaller countries like Austria, should be much more than just flank protection for foreign trade. Foreign policy should also and especially be value-based, supporting democracy, civil and human rights, gender equality, rule of law, social welfare, anti-corruption, etc. Compromises in these areas for the purpose of improving one's own export opportunities not only, but also and especially vis-à-vis Belarus and Russia (and China) are absolutely counter-productive in the long term.

From the point of view of Belarus, economic relations from Austria are clearly more important than the other way round. But until August 2020, ‘it was above all Austria that rolled out the red carpet for the Belarusian ruler after a rapprochement with the EU.’[22] And after August 2020, the fact remains that : ‘Austria, which has close economic ties with Belarus [...] apparently managed to protect quite a few domestic companies from the EU sanctions.’[23]

The harmony between Austrian companies’ bottom line and Lukashenko's lust for power worsens the Belarusian people’s predicament: they are in the chokehold of a regime that will be kept afloat by both western and Russian money.

All significant investments in authoritarian regimes are ultimately political. The idea of ‘change through trade’ (German: „Wandel durch Handel“), which is often used to justify, explain and defend cooperation with such regimes, is a dellusion. Nevertheless, there are no signs of a change in strategy on the part of the EU and its member states.

In the case of Belarus, according to Der Spiegel, Western companies and politicians ‘fall back on the narrative, popular in cooperation with rogue states, of acting only for the good of the population’. Immediately after this statement, the magazine quoted a downplaying statement by the Austrian Foreign Ministry, according to which the savings deposits of young families and pensions of pensioners ‘continue to be secured’[24] – a false assessment, because, as we saw, Priorbank did not hesitate to resort to account freezes when ordered to do so.

Repeated claims by Austrian companies in Belarus that they had ‘no choice’ but to follow Lukashenko's rule[25] are not convincing at all. According to Markus Krajewski (University of Erlangen-Nuremberg), United Nations guiding principles require companies, in this case Austria Telekom and Raiffeisen, to respond to human rights violations. And that means not only sending an e-mail with an ‘expression of regret’ to the affected customers, ‘but also making representations to the Government [of the respective country] and, if necessary, withdrawing from the investment’.[26] Neither Raiffeisen nor Telekom did this.

When dealing with autocrats, the principle ‘don't believe them, don't fear them and don't ask them for anything’ should apply. Any deviation from this will immediately be exploited by such rulers. It is admittedly difficult to design foolproof economic sanctions. But the truth is that the EU has not even tried.

There is actually a moral obligation on companies from democratic countries not to contribute to the strengthening of regimes like Lukashenko's. If companies do not recognise this obligation themselves, it is the role of a democratic state to restrict their activities through appropriate regulation. But so long as it fails in this role – as Austria does vis-à-vis Lukashenko – autocratic rule will remain.

Martin Malek is an independent Austrian political scientist and contributor to the IWM’s Chronicle from Belarus.

Related articles: 

[1] Gabriele Lesser: Reger Handel zwischen EU und Belarus trotz Sanktionen. Der Standard, November 22, 2021, (accessed November 22, 2021).

[2] Katharina Wagner, Handel zwischen EU und Belarus blüht, FAZ, November 17, 2021, (accessed November 17, 2021).

[3] Anders Åslund and Jan Hagemejer, EU Sanctions on Belarus as an Effective Policy Tool. CASE – Center for Social and Economic Research [Warsaw], Belarus Insights, No. 2/2021, p. 9.

[4] Cf. Council Implementing Regulation (EU) 2021/2124 of 2 December 2021 implementing Article 8a(1) of Regulation (EC) No 765/2006 concerning restrictive measures in respect of Belarus. EUR-Lex, (accessed December 19, 2021).

[5] Frank Herold, Eine Milliarde Dollar für Lukaschenko. Der Tagesspiegel, August 25, 2021, (accessed December 20, 2021).

[6] Wagner, Handel zwischen EU.

[7] Ibid.

[8] Exporte aus Belarus nach Deutschland steigen um 50 Prozent an. Die Welt, November 18, 2021, (accessed November 19, 2021).

[9] Klawitter, Im Dienste, p. 72.

[10] Lesser, Reger Handel.

[11] The Future of Belarus in Europe. IWM Vienna, November 23, 2021, (accessed November 24, 2021).

[12] Слишком много лазеек осталось в санкционном режиме, считает Тихановская. Euractiv, December 15, 2021, (accessed December 16, 2021).

[13] Belarus. Los geht’s. Länderreport 2021. Wirtschaftskammer Österreich – Aussenwirtschaft Austria, (21.12.2021), pp. 6, 8.

[14] Grigory Ioffe, Europe Is Talking to Minsk. Eurasia Daily Monitor, November 30, 2021, Volume 18, Issue 178, (accessed December 19, 2021).

[15] Merkel bittet Putin um Eingreifen in Belarus. Deutsche Welle, November 10, 2021, (accessed November 10, 2021).

[16] Quoted from: Gerald Schubert, Brennglas Belarus. Der Standard, November 20/21, 2021, p. 12.

[17] Michael Thumann, Bloß keine Absprachen. Die Zeit, December 26, 2019, (accessed December 20, 2021).

[18] Quoted from: "Eine Spaltung nützt am Ende nur Putin". Der Spiegel, December 20, 2021, (accessed December 20, 2021).

[19] Quoted from: Russia, the case of Alexei Navalny, military build-up on Ukraine's border and Russian attack in the Czech Republic (debate). European Parliament, Debates, Wednesday, 28 April 2021 – Brussels, (accessed December 19, 2021).

[20] Österreichs Außenminister widerspricht Baerbock bei Nord Stream 2. Arte, December 13, 2021, (accessed December 13, 2021).

[21] In August 2021, the Fund announced that "Belarus" (i.e. Lukashenko) would be granted almost USD 1 billion via so-called Special Drawing Rights. This will abruptly increase the foreign exchange reserves of the regime in Minsk by almost 12 per cent – without Lukashenko having to fulfil any conditions in return. "A recipient state can simply put the funds into its state budget and then, as possibly Belar1.6 bid, use them to finance the suppression of opposition activities." (Herold, Eine Milliarde Dollar). Special Drawing Rights are not a direct loan; they allow a state to exchange its national currency for US dollars at banks in the corresponding amount. And that is no problem for Lukashenko in Russia and/or China.

[22] Fabian Schmid, Die zwiespältige Beziehung der heimischen Politik zu Belarus. Der Standard, June 20, 2021, (accessed November 22, 2021).

[23] Klawitter, Im Dienste, p. 72.

[24] Ibid, p. 73.

[25] Ibid, p. 72.

[26] Quoted from: Ibid, p. 72.