Belarus and Russia row over potash raises fear of a trade war

The prospect of a trade war between Russia and one of its neighbours loomed larger yesterday after Belarus ratcheted up the rhetoric against the Kremlin and hinted at further arrests of executives working for Russia's biggest fertiliser company.

Tensions have been rising since Monday when the chief executive of Russia's Uralkali fertiliser group was arrested in the Belarus capital of Minsk. His arrest was particularly shocking as he had just arrived in the country on the invitation of its prime minister.

The executive, Vladislav Baumgertner, was held on suspicion of "abusing his power" in Uralkali's dealings with the Belarusian state-owned potash mining company. Uralkali last month announced it was quitting an export cartel it had with the Belarusian business, sending global potash prices plummeting.

The Belarusian government, led by the so-called "last dictator of Europe" Alexander Lukashenko, claims the withdrawal has caused about $100m (£64m) in damage to the country's economy.

Outraged at the arrest of Mr Baumgertner, Moscow said it would scale back oil exports to the country and cast doubts over the quality of Belarusian dairy exports to Russia. Both statements were seen as a veiled threat of some form of sanctions.

Unbowed, Belarus yesterday declared its investigators had enough grounds to launch a criminal case against Uralkali's biggest shareholder, the Russian billionaire Suleiman Kerimov, as well as a number of Belarusian nationals.

Belarus Investigative Committee spokesman Pavel Traulko suggested the possible charges against Mr Kerimov were obvious, saying to Russia's Itar Tass news agency "no special knowledge of law is required" to understand them.

However, typically in this opaque dispute, he declined to give any indication what the allegations might be.

Similarly foggy was Mr Traulko's admission Mr Baumgertner had been "arrested". This week the official Belarusian line has been that the Russian executive had been "detained", not arrested.

Analysts say the Kremlin may hold back its response to Belarus's provocations because the Kremlin is attempting to woo Ukraine to join the customs union it has with Kazakhstan and Belarus. Ukraine is hoping to join the EU while also warming up frosty relations with Moscow.

Previous rows between the two countries have seen Russia ban Belarusian dairy imports and cut off gas supplies in 2009 and 2010 respectively.

On Wednesday, Russia declared nearly a third of Belarusian dairy products were no longer of high enough quality to comply with Russian health standards.

Russia accounts for half of Belarus's imports and two-fifths of its exports.

Mr Baumgertner pulled the plug on the cartel, known as the Belarusian Potash Co, after Minsk passed a law allowing itself to sell potash in side-deals outside the joint venture.

The spat has been good for the world's farmers, as the price of potash is expected to dive by as much as 40 per cent. Analysts say that could trigger a surge in demand from Indian and Chinese farmers, leading to bumper harvests in the coming years.

Lukashenko: 'Europe's last dictator'

Nothing comes to pass in Belarus without the say-so of its president, Alexander Lukashenko, above.

The man who started as a humble agricultural worker is known by many in the West as Europe's last dictator. He has been in power since 1994 and leads a bizarre regime featuring human rights abuses and homophobia. The death penalty is still administered with a bullet to the back of the head and he is banned from travelling to most Western countries.

Belarus is forced to rely on Russia for trade and subsidies, making this recent spat seem all the more unfathomable.