Stuart Hensel of the London-based Economist Intelligence Unit says the Belarusian economy is built on sand. "Lukashenka clearly faces some economic challenges in the next couple of years," he says. "I think the main problem for him is that a lot of what has helped the Belarusian economy grow so strongly in recent years is not necessarily set to continue."
Gazprom Gets Tough
The country's economy is highly dependent on the inexpensive oil and gas supplies it receives from Russia. Belarus currently pays less for gas than any other country in the Commonwealth of Independent States -- about $47 per 1,000 cubic meters.
With Western European countries paying around $240 per 1,000 cubic meters, Russian supplier Gazprom's recent announcement that it will seek European rates from Belarus has raised concerns in the country.
Hensel says even a minor price increase in energy prices could significantly affect the Belarusian economy, but he doubts the Lukashenka will see a major difference once a new deal for 2007 is worked out.
"The No. 1 concern he [Lukashenka] should have at this point, probably in terms of an immediate external shock, is these recent noises coming from Russia concerning a significant rise in Belarusian gas prices, much as has been seen in other former Soviet republics," Hensel says. "I think he should, as in the past, be able to avoid significant rise in these gas prices."
Former Soviet republics Ukraine, Moldova, and Georgia last winter found themselves in disputes with Russia over gas deliveries -- and all eventually agreed to significant price hikes.
And this week, Gazprom announced that it has inked a new deal with Armenia under which it would gain control of a pipeline being constructed to import gas from Iran.
A gas dispute with Russia could see Belarus losing control over its pipeline operator Beltranshaz -- and with it some economic sovereignty. Control over the Belarusian pipeline operator might well be what Russia is really seeking.
Russia's Best Friend?
But Tatsyana Manyonak, an economic analyst for the Minsk-based weekly "Belarusy i rynok" (Belarusians and the Market), says Lukashenka might still be able to work out a good deal. This, she says, is because Russia treats Belarus differently than other countries for political reasons.
"I cannot seriously believe that it [Russia] will put its only ally, President Lukashenka, into some kind of blind alley," Manyonak says. "I don't think that it is useful for Russia now. This is the reason I think some compromise will emerge concerning both a price for oil and also for gas."
Manyonak says Belarus is important to Moscow both militarily and as a transit country for Russian goods. She also notes that Belarus is the only post-Soviet country that openly seeks to unite with Russia.
Energy Not The Only Problem
Regardless, Minsk's economic worries go beyond its dependence on cheap energy.
During his rule Lukashenka has steered Belarus away from the economic reforms that have swept through the region. This has left the country with no functioning market economy and about 80 percent of its industry in state hands.
And, as Hensel of the Economist Intelligence Unit notes, Lukashenka has consistently raised pensions and wages in an effort to sustain popular support. "Wages have been growing extremely fast under Mr. Lukashenka," he says. "That's something that's probably unsustainable. That's put a lot of pressure on Belarusian companies also in terms of competitiveness."
Nearly 60 percent of Belarus's factories are currently operating at a loss. The burden this places on the economy is partly offset by a small number of profitable companies that provide subsidies and contribute to state social programs.
Such a course is difficult to maintain, but while Hensel believes economic reforms are in order, he says Lukashenka has become a slave to his own economic policy.
"His economic policies have not encouraged the degree of investment and restructuring that the economy needs in order to ensure sustainable growth," he says. "The problem for him is his entire political model and his entire ability to retain political control depends on the sort of economic structures that he has put in place. Namely very strong state control."
Implementing market reforms would mean the closure of factories and higher unemployment -- which would harm Lukashenka's popular support. The rise of private business and a middle class could potentially pose a challenge to his rule.
So ultimately, Hensel believes Lukashenka has placed himself in an uncomfortable situation -- one in which he cannot continue as before but is also unable to move forward.
RUNNING HOT AND COLD The crisis over Russian supplies of natural gas to Ukraine that erupted on New Year's Day has implications that spread well beyond these two countries and will impact both economic and political policymaking throughout Europe. On January 19, RFE/RL's Washington, D.C., office hosted a briefing the examined the ramifications of the natural-gas conflict.
CLIFFORD GADDY, a senior fellow at the Brookings Institution, outlined Russia's "grand energy strategy," in which Ukraine is perceived as merely an obstacle frustrating Russia's energy ambitions in Western Europe and therefore a nonentity in Russia's broader strategic planning. According to Gaddy, Russia's strategic goal regarding energy is to maximize the role of its own energy resources in the world energy markets, so as to increase its geopolitical influence. To do this, it must reduce competition and maximize dependency on its own energy resources, as well as ensure a stable supply.
TARAS KUZIO, a visiting assistant professor at George Washington University, rebutted Gaddy's argument, claiming that Russia's actions evidenced a complete lack of geopolitical strategy and resulted in strong denunciations by Western countries and a loss of political allies in Ukraine. According to Kuzio, Russian President Vladimir Putin's desire to have a deal signed by the January 4 European Union energy summit outweighed his hope of reinforcing opposition to Ukrainian President Viktor Yushchenko during the run-up to Ukraine's March 26 parliamentary elections.
RFE/RL Coordinator of Corruption Studies ROMAN KUPCHINSKY did not fully agree with Kuzio's assessments of Yushchenko or Ukraine. He outlined three major problems that are feeding the conflict between Russia and Ukraine. The biggest, he argues, is that the state-controlled Russian gas giant Gazprom holds a monopoly on natural-gas sales outside the CIS. Kupchinsky also decried Ukraine's consumption of natural gas, terming it "out of control." Corruption is also a major factor in the conflict, Kupchinsky said, although the extent to which it taints the deal struck between Russia and Ukraine remains unknown.