Russia bids to bring Belarus into line with gas war

By Dmitry Zhdannikov

MOSCOW, June 23 (Reuters) - Russia's "gas war" with Belarus may be motivated by a desire to persuade its combative leader Alexander Lukashenko to approve a new trade pact, surrender major assets and show more deference to Kremlin will, analysts say.

Russia has never before cut off gas supplies to its close ally Belarus and neither side has explained publicly why a payment dispute over the seemingly trivial amount of $200 million should have flared into a full-blown crisis.

The explanation, experts say, is that Moscow is hoping to get its former Soviet dominion to fall into line, signing on to a long-delayed customs union with Russia and to stop giving refuge to an exiled Central Asian ruler who has crossed Moscow.

But in the long run, Lukashenko, criticised in the West for authoritarian rule, poses a big challenge for Russian Prime Minister Vladimir Putin and President Dmitry Medvedev in their fight for control over post-Soviet territory.

While Lukashenko has irritated Moscow with his independent approach, Russia's rulers fear anyone who succeeds him might wrest the country from Moscow's grip and into a Western embrace.

"Lukashenko realises he has to bow to Moscow's demands and has simply raised the stakes dramatically to gain as many concessions as possible," said Fyodor Lukyanov, editor-in-chief of the magazine "Russia in Global Affairs".

Moscow accuses Minsk of having amassed a $200 million debt and has reduced gas supplies, demanding immediate payment.

On Tuesday, Lukashenko said the two nations were facing a full-fledged "gas war". On Wednesday, his government ordered suspension of Russian oil and gas transit to Europe from Thursday if Russia did not pay debts for gas transit.

Energy markets have stayed largely unmoved so far; in contrast to a similar gas row between Russia and Ukraine in January 2009 when prices spiked on supply shortages, tarnishing Russia's image as a reliable producer and spurring a European quest for new suppliers.

"The closer to winter those negotiations drag on, the greater the risk of a market-relevant cut off to Europe," said Jenia Ustinova of the Eurasia think-tank.

Russia, the world's largest energy exporter, supplies Europe with 25 percent of its gas needs, with four-fifths of that flowing via Ukraine and one-fifth via Belarus.

Belarus has a number of lucrative enterprises such as oil refineries which it has promised to sell to Russian firms; but it has repeatedly rowed back on its pledges thus further angering a Kremlin keen to increase its presence abroad.

It co-owns gas pipelines in Belarus but has hinted it would prefer to fully control them.


Belarus is to hold presidential elections next year and Lukashenko, who has ruled the country since 1994, has pledged to keep raising state wages and salaries. That leaves him vulnerable to Moscow, which has begun scrapping subsidised energy exports to its neighbours.

Russia's energy subsidies to Belarus amount to $7 billion a year as Minsk pays the lowest price among Russian gas customers.

Minsk has bridled at recent increases, saying it should pay less if Moscow is serious about close ties. Lukashenko has also courted the West and sought other energy sources.

"Moscow is trying to keep Belarus in its orbit by gas politics by hitting Lukashenko's social contract, in which he delivered stable prices and living standards in return for power," said Jana Kobzova, analyst at the European Council of Foreign Relations.

But unlike previous disputes, when Lukashenko attacked Moscow mainly for energy pricing, the latest row shows the Kremlin may be about to lose control over him altogether.

Analysts said Lukashenko has particularly angered Moscow this year by repeatedly turning down the Kremlin's proposals to set up a unified customs union.

"Russia needs the customs union as it is keen to repair production chains that existed in the Soviet Union," said Lukyanov who said he expected Lukashenko to agree to the creation of the union next month when talks are due to resume.

Ustinova said ties could not be easily fixed after Lukashenko gave refuge to ousted Kyrgyz President Kurmanbek Bakiyev, despite Moscow's support for the new Kyrgyz leadership.

Lukyanov agreed that by giving Bakiyev refuge, Lukashenko showed he was prepared to challenge Moscow's supremacy on the territory of the former Soviet Union.

"The Kremlin would be delighted if Lukashenko simply vanished. The only problem for them is that whoever replaces him will inevitable flirt with the West while Lukashenko is bound to look only at Russia," he said. (Additional reporting by Ben Judah, Writing by Dmitry Zhdannikov; editing by Ralph Boulton)


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