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Russia/Belarus: Possible Gas Price Hike Could End Warm Ties

A gas-compressor station near Minsk ( PRAGUE, June 1, 2006 (RFE/RL) -- For more than a decade, Russia's relations with Alyaksandr Lukashenka's Belarus have been a fairly predictable affair. Moscow provided cheap energy, and Minsk returned the favor with absolute political loyalty.

There were even moves to solidify the partnership by forming a union state -- a largely symbolic political marriage with elements of economic and military cooperation. But threats by Russia's state-controlled Gazprom to charge market prices for natural gas may upset the balance of the relationship -- and put at risk the generous social-welfare state that has kept Lukashenka popular despite his autocratic tendencies.

Barely two weeks had passed since authoritarian President Alyaksandr Lukashenka rode to reelection March 19 on promises to maintain economic stability and a social safety net in Belarus.

Then Gazprom made a worrying announcement. After years of generous gas subsidies, it was time for Belarus to face market realities and triple or even quadruple the price it pays for natural gas.

It's a threat Gazprom has made repeatedly with its CIS neighbors -- but with a difference.

Prices Paid For Gas (per 1,000 Cubic Meters)

Belarus -- $47
Ukraine -- $95
Lithuania -- $105
Armenia -- $110
Azerbaijan -- $110
Georgia -- $110
Moldova -- $110
Latvia -- $120
Estonia -- $120
Western Europe -- approximately $230

When the gas giant earlier this year raised prices for Georgia, Ukraine, and Moldova, it was widely seen as punishment for those countries' pro-Western leanings.

Cheap Gas

Belarus, by contrast, has long been a loyal, pliant ally -- and has routinely been rewarded with cheap gas.

So what happened?

Fyodor Lukyanov, editor in chief of the Moscow-based journal "Russia In Global Affairs," says that Moscow is a little tired of subsidizing Belarus.
"They are letting Lukashenka know that Russia will not continue providing subsidies to support his social model forever. This situation is going to end," he says.
Lukyanov and other observers say Moscow has a dual motivation in threatening to raise gas prices for Belarus from the current $47 per 1,000 cubic meters to as much as $200 per unit.

One is Gazprom's long-term ambition to gain monopoly control over pipelines to Western Europe's lucrative energy markets. The other is an admission by the increasingly confident Kremlin that perhaps the time has come to alter its relations with politically awkward allies like Minsk.

Lukashenka has benefited from cheap Russian gas (CTK)

Together, Gazprom and the Kremlin appear to be forcing Lukashenka to choose between two equally unpalatable options: either sell a 50-percent stake in Beltranshaz, the state-owned operator of Belarus's gas pipelines, or pay European market rates for natural gas.

Valery Karbalevich, an analyst with the independent Minsk-based Strategy Center for Political Analysis, says Lukashenka is reluctant to give up significant state property like Beltranshaz. On the other hand, a Gazprom hike will mean higher energy prices for Belarusian families used to paying an average of just $30 a month for utilities.

Either way, Belarus's economy will suffer -- as will Lukashenka's political standing.

"If this economic situation with the gas is not resolved, Lukashenka will be in a very difficult position. All of his social stability is based on the fact that Russia subsidizes him economically," Lukyanov says. "If this stops, the internal situation in Belarus will begin to change. And then we can expect a serious game to begin about who can be the real opposition to him."

Moscow Visit
Belarusian Energy Minister Alyaksandr Azyarets and Beltranshaz chief Dzmitry Kazakou are scheduled to arrive in Moscow on today for negotiations. Minsk has threatened to raise Gazprom's transit fees to transport gas across Belarus. But there appears to be little more it can do to counter the Kremlin pressure.

Yevgeny Volk, director of the Heritage Foundation's Moscow office, says Russia's "economic stranglehold" strategy in Belarus is similar to earlier efforts in Ukraine. But while Ukrainian President Viktor Yushchenko could turn to the West for diplomatic support, Lukashenka's isolationist policies have left him with no powerful outside allies.

Lukashenka and other top officials are currently subject to European and U.S. travel bans following allegations of election violations in the March presidential ballot.

The sanctions come at a difficult time for Moscow, which is seeking to position itself as a global powerhouse during its G8 and Council of Europe chairmanships this year. Volk says Lukashenka has proved such a pariah, in fact, that Russian President Vladimir Putin may be hoping to distance himself from a potentially embarrassing ally -- or even replace him altogether.
"I believe that Lukashenka irritates the Kremlin more and more because of his policies of suppressing liberties, suppressing opposition," Volk says. "They really cast a shadow on Moscow, which cannot boast respect for human rights either. But the respect for Lukashenka makes Putin and his regime more and more vulnerable to Western criticism."

Russia's Gas Strategy

Russia's Gas Strategy

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.


Listen to the complete panel discussion (about 90 minutes):
Real Audio Windows Media


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