Free Network Policy Brief Series
The competitiveness of the Belarusian economy is largely determined by its access to cheap Russian energy resources. The country’s total dependence on Russia for oil and natural gas supplies poses a major vulnerability for the Belarusian economy should its citizens strategically choose to integrate with the EU. A severe energy shock – a sharp increase in gas and oil prices – is highly likely to follow if political relations between Belarus and Russia worsen. This study assesses the sectoral and macroeconomic consequences of such a shock for Belarus using a computable general equilibrium model.
The simulation results show that primary raw material processing industries, as well as manufacturing sectors heavily dependent on cheap energy resources, could face significant output losses. In turn, export-oriented, higher-value-added sectors (mechanical engineering, communications, pharmaceuticals, and light industry) have the potential to increase production and exports through the inflow of labor and capital. Should the EU choose to provide carefully designed support – focused on targeted energy subsidies, support for Belarusian firm integration into European production chains, and productivity-oriented financial assistance – the negative short-term consequences of an energy shock could be largely mitigated.