IHS Global Insight: Belarusian President warns of 'gas war' with Russia

The following is an analysis provided by IHS Global Insight:Belarusian president Alexander Lukashenka warned Russia of a looming "gas war" after ordering the suspension of Europe-bound Russian gas transit via his country in the wake of Russia's punitive reduction of gas supplies to Belarus over the US$192-million debt settlement.


Belarusian president Alexander Lukashenka has ordered the suspension of Russian gas transit to European Union (EU) unless the Russian gas giant Gazprom settles its outstanding transit bill.

ImplicationsIn response to Belarusian defiance Gazprom has reduced its gas supply today, bringing the overall reduction in volume to 60%. The standoff between Belarus and Russia has forced the Russian gas importing countries Lithuania, Germany, Poland, and also the Russian exclave of Kaliningrad, to prepare for possible gas shortfalls, although the regular gas supply volumes were maintained today.


The current Russia-Belarus gas dispute is likely to be resolved by a deal that will swap Belarus' gas debt for Gazprom's transit dues. Due to the low gas demand and the emotive rhetoric between the two countries' leaders, this process may be protracted, but minimal actual harm will be done to gas supply to EU importing countries. However, the spat is likely to cast more doubt on Russia's ability to be a reliable energy supplier.

Belarus Makes Its Move

One day after Russian president Dmitry Medvedev ordered Gazprom to begin reducing gas supplies to Belarus, Alexander Lukashenka, the Belarusian president, retaliated in kind, ordering his government to halt the transit of Russian gas via his country. What was previously a relatively straightforward, albeit politically tinged dispute over Belarus's US$192-million debt for gas supplies-quite minor, when you consider that it took debts of more than US$1 billion for Gazprom to shut off gas to Ukraine before-has now ratcheted up to what Lukashenka himself said is a "gas war" between Belarus and Gazprom.

Lukashenka, after first suggesting that Belarus had no debt to Gazprom, then suggested that Belarus pay Russia in kind, a move that in fact aggravated the developing situation. Belarusian officials said that their government could pay off the debt in two weeks, but Medvedev's response to Lukashenka's in-kind payment offer-saying that "Gazprom cannot accept pies, butter, cheese, pancakes or any other type of payment"-infuriated the Belarusian president. Lukashenka appeared to take Medvedev's comments not as a rejection of the former Soviet-era practice of barter but instead as an insult to Belarusian identity. "When they begin to demean our cutlets, sausage, butter and pancakes, we perceive it as an insult to the Belarus people," Lukashenka said, suggesting that the dispute is becoming more personal. "That is no way for a president to conduct himself, particularly from a neighbouring allied state."

The Belarusian president then ordered the halt to Russian gas transit, saying that gas intended for transit would resume once Gazprom pays its bill to Belarus for transit services. Gazprom, for its part, has acknowledged its debt of more than US$200 million to Belarus, but claims that it is ready to pay the debt as soon as Belarus lets it by signing the relevant papers. Meanwhile, Belarus's own debt for gas supplies, which Gazprom further reduced to 30% below normal yesterday, is set to rise to approximately US$270 million this week, according to officials from the Russian gas firm.

European Impact Limited

Belarus normally transits around 15% of Russia's total gas exports to Europe, but weaker demand and seasonal dips in consumption mean that this percentage is even lower at present. Nonetheless, Gazprom is not taking any chances, with spokesperson Sergei Kupriyanov saying yesterday that the company is prepared to use all means possible to meet its full contractual export obligations with its European consumers. Kupriyanov said that Gazprom is working on alternatives to bypass Belarus in order to meet its export commitments, including spot market purchases and potential additional gas volumes sent to Europe via Ukraine. Mykola Azarov, Ukraine's Russia-friendly prime minister, said yesterday that Ukraine is ready and willing to transit an additional 15-30 bcm of gas per year via its transportation system if it becomes necessary.

Although Belarus has reportedly begun to redirect transit gas for its own use, thus far there have been no reports of interruptions in Europe. Marlene Holzner, spokesperson for European Energy Commissioner Guenther Oettinger, told Dow Jones that, "There is no indication that there is less gas," echoing the same message coming from Poland, Germany, and Lithuania, all of which get at least some of their gas imports from Russia via Belarus. Polish prime minister Donald Tusk told reporters that, "The [Russia-Belarus] conflict doesn't affect Poland in any perceptible way," adding that there had been no drop in pressure on the Yamal-Europe pipeline. With transit volumes blocked by Belarus, both Poland and Germany can also rely on gas in domestic storage and/or receive additional Russian gas sent via Ukraine.

For Lithuania and the Russian exclave of Kaliningrad, however, a prolonged halt in gas transit via Belarus could be more problematic. Both Lithuania and Kaliningrad are almost exclusively reliant on the transportation route for Russian gas via Belarus, although Lithuania's connection to Latvia and its underground gas storage facility at Incukalns gives the Baltic state another option. Lithuanian prime minister Andrius Kubilius said that his country was not experiencing ay shortages, but he said that the dispute and the very threat of a disruption would give added impetus to the government's proposal to build an LNG terminal on its coastline. For Kaliningrad, which relies on gas transit via Lithuania from Belarus, the Russia-Belarus dispute merely reaffirms the need for an underground storage facility to improve the exclave's energy security. Russian prime minister Vladimir Putin called on the government this week to speed up construction of a gas storage facility in Kaliningrad, which he said should be put into operation by late 2011 or early 2012.

Outlook and Implications

The gas conflict is likely to continue for several days, slightly longer then it should, as it is increasingly becoming an emotive dispute between Russia and Belarus. At the moment the impact of disruption on importing countries is minimal as the dispute involves only 15% of the overall Russian gas supply to the EU. The situation is alleviated not only by the low summertime demand for gas but also Gazprom's efforts to make up the gas supply shortfalls by channelling transit gas through Ukraine. This means that the need for immediate resolution of the stalemate is not pressing and cannot be compared to the situation back in the winters of 2006 and 2009 during the Russia-Ukraine "gas wars".

In some ways the continuing dispute is favourable for Lukashenka. He is trying to gain points both domestically and internationally. Lukashenka, dubbed by the previous U.S. regime as the last dictator in Europe, is keen to portray himself as a defender of his people's true interests. By engaging in confrontation with Russia and demanding cheap gas he presents himself as a champion of his people's rights. He portrays himself as a president who delivers tangible benefits for his nation, such as cheap energy supply, while dismissing as unimportant the persistent calls for individual freedoms. Internationally, Lukashenka hopes to soften the Western criticism of his authoritarian regime by portraying himself as a brave leader of a former Soviet republic able to stand up for its sovereignty and rights against its previous patron, powerful Russia.

In contrast, Russia seems to have lost out again. Although Gazprom has improved its public relations campaign, used the EU's "early warning system" to signal the upcoming supply problems and tried to explain better and faster the details of the commercial dispute it failed to quell the EU's nervousness over the security of gas supply. This is due to Medvedev's televised message designed to publicly humiliate cash-strapped Lukashenka by refusing to receive Belarusian goods in return for the supplied gas. While the Russian government might feel that this method of delivering the message was appropriate for Lukashenka who is no stranger to inflammatory statements, overall it did not send a positive message to Russia's gas consumers in the EU.

The dispute is likely to be resolved when the emotions on both sides are vented. Most likely the parties will agree to a deal where the Belarusian debt will be swapped with the Russian transit debt. However, the spat is likely to linger in the EU countries' memory as yet another failure by Gazprom to resolve its problems with its neighbours without resorting to "gas wars". Despite the Russian gas giant's best efforts, similar disputes cannot be excluded in the future given the involvement of politics, an inevitable factor as long as Gazprom remains a state-owned company.


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