BELARUS NEWS AND ANALYSIS

DATE:

01/08/2007

Russia, Belarus: Lukashenko's Two Bad Options

Summary

Russian state-controlled natural gas monopoly Gazprom will reduce natural gas exports to Belarus by 45 percent beginning Aug. 3, leaving natural gas deliveries to EU customers unaffected, a Gazprom spokesman said Aug. 1. This follows failed negotiations between Belarusian Prime Minister Sergei Sidorsky and his Russian counterpart, Mikhail Fradkov, over a $1.5 billion loan from Moscow to Minsk, leaving Belarus no way to resolve its $456 million debt to Gazprom. Belarusian President Aleksandr Lukashenko must now either ask for help from Europe, which he has always suspected of wanting to remove him from power, or bend to Russia, which wants access to Belarus' energy assets for Gazprom. Either option will require Lukashenko to swallow his pride.

Analysis

Russian state-controlled natural gas monopoly Gazprom will reduce natural gas deliveries to Belarus by 45 percent Aug. 3, although natural gas exports transiting Belarus to the European Union will continue, Gazprom announced Aug. 1. The reduction follows Belarusian Prime Minister Sergei Sidorsky's unsuccessful negotiations with Russian Prime Minister Mikhail Fradkov on July 30-Aug. 1 for a $1.5 billion loan from Russia to pay off its $456 million energy debt to Gazprom. In Russia's eyes, Belarusian President Aleksandr Lukashenko wasted both Belarus' negotiating time and Gazprom's (and thus the Kremlin's) patience by focusing on internal politics rather than the issue at hand.

To resolve the situation, Lukashenko will have to either ask Europe to repay the debt -- a move that would require Lukashenko to overcome his concerns that the West wants him out of power -- or bend to Moscow's will and surrender more of Belarus' energy assets to Gazprom. Neither choice is particularly appealing for the Belarusian president.

Belarus missed the July 23 deadline to pay back its debt to Gazprom, which it accrued by continuing to purchase natural gas from Russia at $55 per 1,000 cubic meters after Gazprom upped the price to $100 per 1,000 cubic meters in January. Fradkov said Russia will approve the loan as soon as Belarus agrees to certain concessions, such as a promise to allow Gazprom more control over the Belarusian energy market, and enable Belarus to pay its debt.

This is not the first time Belarus has been in this position. When Russia reduced energy supplies to Belarus in January, Lukashenko siphoned oil from supplies destined for Poland and Germany, eventually resulting in a Russian shutoff of all oil deliveries to Europe through Belarus.

The risk of a repeat shortage is considerable for a nation like Poland, which imports 60 percent of its natural gas from Russia through Belarus. Poland's Economic Ministry and the European Commission, wary of another Ukraine-style energy cutoff, have demanded that energy deliveries remain unaffected by the current Russian-Belarusian commercial dispute -- no small concern, since 20 percent of Russia's natural gas exports pass through Belarus to states such as Germany, Poland and Lithuania.

Lukashenko could ask Europe for help based on a shared concern about Russian energy cutoffs if he were not afraid that democratic reform or a color revolution would be a precondition for assistance. Though the West could be willing to put energy security ahead of democratic values, it will be difficult for Lukashenko to change his Cold War mindset. The same problem hindered Lukashenko's last appeal to the West for help with Belarus' mounting debt, in February. Instead, he ended up going with Moscow and selling Gazprom a 50 percent stake in Belarusian natural gas pipeline operator Beltransgaz. However, the announced Aug. 3 reduction is a sign that Belarus does not necessarily have Russia's unconditional support.

With the natural gas reduction two days away, checked by the Kremlin on one side and his paranoia on the other, Lukashenko has only two options ahead of him. On one hand, he can go with his traditional pro-Russian instincts and crawl into the doghouse on the Kremlin lawn, giving Gazprom full access to Belarus' energy infrastructure and promising not to cause any more trouble. On the other hand, he can make a sincere overture to the West based on common energy concerns or the potential for economic and political reform, asking Europe to come to his aid and pay the debt. Neither option is optimal for Lukashenko, but given his previous behavior, he will accept the Kremlin's terms rather than risk being removed from office.

Source:

http://www.stratfor.com/products/premium/read_article.php?id=293274