Russia escalates dispute with Belarus after CEO's arrest

By Timothy Heritage MOSCOW (Reuters) - Russia banned pork imports from Belarus on Friday, stepping up a diplomatic and trade war over the arrest of a Russian businessman and threatening to deepen the isolation of its former Soviet ally. Russia is one of Belarus' few diplomatic backers after 19 years of authoritarian rule by President Alexander Lukashenko but has responded furiously to the arrest this week of Vladislav Baumgertner, head of Russian potash company Uralkali. Baumgertner was seized on Monday at the airport outside the Belarussian capital Minsk after being invited to talks with the prime minister, and then humiliated by television footage showing him being searched in his prison cell. Since then, Russian officials have announced a 25 percent drop in oil supplies to Belarus in September, threatened to extend the cuts for several months and hinted at possible restrictions on imports of Belarussian dairy products. Russia's veterinary regulator said the restrictions on hog and pork product imports had been imposed over concerns about African swine fever in Belarus and would not be lifted until the virus was wiped out or brought under control. The moves could deal a significant blow to Belarus, a transit country for Russian oil and natural gas to Europe. Its economy, already in danger of collapse, is heavily reliant on agriculture and Russian oil supplies. "Relations between Russia and Belarus seem to be delving to new lows and the expectation is that Russia will further ratchet up pressure on its neighbor via the trade channel," said Timothy Ash, an analyst at Standard Bank in London. "All this comes as the economy in Belarus looks precariously fragile." POTASH CARTEL The dispute followed the collapse this month of a Russia-Belarus sales cartel that controlled two-fifths of the $20-billion global market for potash, an ingredient used in mineral fertilizers. In a sign that the breakup of the joint venture with Uralkali is causing problems for Belarus, a senior official at state potash producer Belaruskali said it had suspended two of its four potash mine complexes for maintenance. Any big fall in output at Belaruskali, which was Uralkali's partner in the potash cartel, would have a severe impact on the finances of Belarus, where the soil nutrient accounts for 12 percent of state revenue and about 10 percent of export income. Russian President Vladimir Putin has said nothing in public about the dispute but his foreign policy adviser, Yuri Ushakov, said Moscow was counting on Belarus freeing Baumgertner quickly and described the dispute as commercial but not political. The Kremlin also tried to play down the political impact by saying Putin had followed protocol by sending a telegram congratulating Lukashenko on his 59th birthday on Friday. Russia has denied any of the economic or trade moves this week were connected with Baumgertner's arrest but the timing undermines these statements. Belarus has defied the pressure, charging Baumgertner with abuse of his authority and threatening criminal charges against Suleiman Kerimov, Uralkali's top shareholder and a Kremlin ally. But Belarus, a country of less than 10 million, needs Russia for energy and economic handouts and as a counterweight to the European Union and the United States, which shun him because of his treatment of opponents and lack of tolerance for dissent. The timing is unfortunate for Putin because Russia is also in a dispute with Ukraine, another former Soviet republic which Moscow wants to dissuade from closer integration with the West. Western European countries are following the situation closely because oil supply cuts in the past to Ukraine and Belarus have caused disruptions to pipeline flows to Europe. Moscow says Kiev must choose between free trade with the EU and a Russia-led customs union that also includes Belarus, and wants control of Ukraine's gas pipeline network. But Ukrainian President Viktor Yanukovich stood firm on Friday, saying: We will not trade up our country - that is our principle." Moscow is particularly sensitive to what happens in Belarus and Ukraine because it considers them as its "near abroad", an area where it sees Western diplomatic or economic interference as a threat. (Additional reporting by Andrei Makhovsky in Minsk; Editing by Richard Balmforth and Alison Williams)