Russia Limits Gas Flow to Belarus: of Pipelines and Butter

Russia's state-controlled monopoly Gazprom started reducing gas supplies to Belarus over the debt of about $200m that Minsk can't or won't pay off. Because Belarus and Russia are in a Union State and have a long history of camaraderie, Gazprom plans to introduce the reductions in a truly brotherly fashion: "day-by-day, proportionally to the debt's volume." It has started with a modest 15% cut that reach more than 80% as the spat continues. No 100% cut seems to be a possibility, however.

Whatever the outcome of this argument, Belarus may wind up the winner in the short run. (Incidentally, this to date two-decade "run" on generous energy subsidies could have been even longer had it not been for the financial crisis.) Even when Minsk finally starts paying market energy prices, it will have milked Moscow for decades despite being far from a reliable ally and doing little in return.

To an extent, the energy rows have been recurring year after year because collecting Belarus' meager payment in full has been a matter or principle rather than financial need to Gazprom, which possesses an enormous foreign reserves fund and is backed by the Russian government. There may also be a catch for Minsk in long run, however.

How has Minsk managed to pull this off? In a truly Soviet spirit, the Belarusian leadership had the guts to buy gas at the price no higher than it deemed to be fair. The fair price to Belarus in 2010 seemed to be the last year's gas price of $150 per thousand cubic meters. That Russia must subsidize its customs union buddies with cheap oil and gas seems quite logical to the Belarusian government; one could even argue that the customs union had zero value without this provision. The frequent disagreement on what would seem to be a clear Russian language of its contracts and agreements with Moscow is a clear sign that the regime in Minsk has finally started to speak some native Belarusian, opting for an independent political decision-making and refusing to be the Kremlin's lackey.

When the Russian bear stirred with discontent at the growing debt, Minsk tried resolving the issue by denying the debt's existence. When finally pressured to pay up, it has offered to remunerate Russia in kind - in Medvedev's parlance, in "pies, butter, cheese or pancakes." After nearly half a year of ignoring Gazprom's prices, Minsk was finally faced with gas cuts. Refusing to pull in its horns, Minsk threatened to cut off the transit of Russian gas to Europe in return. Here Minsk's perfect plan may have received a dent as Kiev, under a pro-Russian president, has offered to make up for any shortage by allowing more gas to flow through the pipelines on the Ukrainian territory. Belarus may have a harder time exploiting the Kremlin now that Ukraine is on better terms with Russia, but even so, Belarus' nerve and entrepreneurial talent of sorts deserves some appreciation.

Is Belarus really so poor that it has to resort to paying with pies and promises? Some suspect that Minsk's failure to pay off its debts results not from its financial difficulties but merely from the rational preference for paying as little as possible. Like a magician's box, a budget of an autocratic state like Belarus may have a double bottom, with at least one hidden layer that is completely at the autocrat's discretion.

When this particular gas row ends and how soon the next one arises will likely depend on the priorities of the Belarusian regime rather than on the Russian mood and objectives. As the presidential elections near, Belarus' president may go for the so-called rally around the flag effect, strengthening his reputation as a supporter of the Belarusian sovereignty and refusing to agree to Russia's demands. Alternatively, Lukashenka may attempt to gain the support of the European Union, but he would have to work a lot harder for that.

The ultimate balancing sheet of the Belarus-Russia gas disputes has always been a continuation of subsidies, albeit smaller ones, to the Belarusian regime; a dent in Gazprom's reputation as a reliable gas supplier; a reminder to Europe to diversify its energy supplies; a boost to Lukashenka's reputation as an adept politician and negotiator, and an increase in the number of people who have heard the name of the small country called Belarus.

But there's a catch. If Minsk is not careful, the savings on energy prices that bring popularity to its leader may cost a high price in Belarus' independence in the long run. This could easily happen if Minsk agreed to sell Russia majority stakes in Belarus' transit infrastructure for a number of years of cheap gas supplies. If its relations with the West remain sour, Belarus will have no one to turn to for loans to prevent such an outcome if the day of reckoning comes.



Partners: Social Network