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    [NGW Magazine] Belarus extracts concessions


In April, Moscow and Minsk agreed a new energy deal for this year, papering over the cracks in an ever less friendly relationship. Claiming some success, Minsk still clearly has some bargaining power.

by: Dmitry Shlapentokh

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Natural Gas & LNG News, Europe, Premium, NGW Magazine Articles, Volume 2, Issue 11, Political, Intergovernmental agreements, Infrastructure, Pipelines, News By Country, Belarus, Russia

[NGW Magazine] Belarus extracts concessions

By Dmitry Shlapentokh

In April, Moscow and Minsk agreed a new energy deal for this year, papering over the cracks in an ever less friendly relationship. Claiming some success, Minsk still clearly has some bargaining power.  

According to an April 2017 intergovernmental agreement between Moscow and Minsk, Belarus will pay Russia the present-day price – $130/’000 m³ for the rest of this year. Next year it will pay less than $130/’000 m³ although the price will be denominated in Belarusian roubles. It will also repay the debt it owes for gas, not far short of $700mn.  

For its part Russia will also send to Belarus 24mn mt of oil tax free, up from 18mn mt/yr, Tass reported. The Belarusian president Alexander Lukashenko said his country would compensate for the Russian gas price, which Minsk has been describing as too high, by re-exporting some of this Russian oil. The treasury could earn an additional $500mn by re-exporting 6mn metric tons/yr.

The deal ends a stalemate. In 2016 Belarus paid $107/’000 m³ for Russian gas, whereas Gazprom had demanded $132/’000 m³. Belarus had wanted to pay just $72/’000 m³ and to move to netback pricing – which would mean paying the equivalent of the Russian price plus the cost of any transport, which would be small given the countries share a border. 

Moscow – acting as the main shareholder of Gazprom – demanded that Minsk should pay what Moscow regarded as Minsk’s debts. By the autumn of that year, Belarus owed Russia between $270mn and $300mn so Moscow, according to newsagency Tass, cut the tax-free oil deliveries by a third. 

By the spring of 2017, these debts had mounted to $660mn. The stand-off continued until they did a deal in April, when the two leaders met, and presumably solved at least some of their problems, engaging in a mutually acceptable compromise, albeit later Lukashenko made it clear that the problems with Moscow were far from over.  

Some Russian observers believe that Moscow’s decision to engage in the deal is purely geopolitical. One of them noted that the conflict between Russia and Belarus emerged when Russia was facing increasing problems with the west and this influenced Russia’s relationship with Belarus. 

The other reason for the discount was the downward pressure on gas prices, and Moscow was genuinely worried that gas prices could fall even more. All of these factors explain Moscow’s desire to find compromise. Still the implication of the conflict is clear. 

First, the recent clash with Belarus influenced Moscow’s approach to the country. Moscow increasingly sees Minsk as a foreign entity. 

Second, and related, is the implication that Russia has now lost not just Ukraine, but even supposedly pro-Russian Belarus as reliable transit countries for deliveries westwards. That would explain Russia’s need to speed up the building of Nord Stream II and Turkish Stream. 

Both gas lines would bypass the unreliable former Soviet republics, as well as members of the former Warsaw Pact, and would deliver Russian gas directly to solvent markets customers in west and central Europe despite its 100% control of Beltransgaz, now known as Gazprom Transgaz Belarus. 

Difficult history

Belarus, a small Slavic republic of the former USSR, is officially one of the strongest Russian allies. It is in a “union” state with Russia, and in 2015 became one of the founding members of the Moscow-sponsored Eurasian Union. Still, Moscow looks at Belarus not so much as an ally as a vassal and it has used gas and oil supplies to impose its will on Minsk. 

In the beginning of the post-Soviet era, Moscow tried to accommodate Minsk’s needs; but as time progressed, Moscow’s approach to Belarus changed and the pressure has increased recently. The implications of this could be manifold, and be both geopolitical and economic. 

First, Belarus could continue to drift away, despite being formally a member of the union. Conflict with Belarus would also provide Russia with additional incentives to build Nord Stream II to send its gas directly to Europe, and bypass the republics of the former USSR, Belarus – the first transit country for Yamal Europe – among them. 

Before Vladimir Putin’s presidency, Boris Yeltsin’s approach towards Belarus, and Moscow’s policy in regard to gas supplies, were closely linked with Russia’s internal politics. By the end of his presidency, Yeltsin was increasingly pressed by Nationalists and Communists who accused him of destroying the USSR and accelerating Russia’s socio-economic decline. To demonstrate to the public that he was not a mere vandal but instead the founder of a new, multi-ethnic state, and indirectly restoring the USSR and some of the arrangements from the Soviet era, Yeltsin engaged the support of the Belarusian leader. 

Lukashenko had his own reasons for moving closer to Russia. To start with, Belarus, so recently a part of the USSR and integrated in the Union economy, had a hard time surviving on its own. Minsk wanted the Russian market and especially Russia’s oil and gas. 

Second, Lukashenko saw how unpopular Yeltsin was, and thought that he could eventually replace him in the future. The deal was cemented by the old Soviet provisions, which implied that Belarus would receive gas and oil much more cheaply than external customers outside the former USSR. 

Yeltsin’s Russia continued to provide a considerable discount for Belarus since the beginning of the post-Soviet era. But even in this new dawn the tension between Moscow and Minsk was visible. The conflict was due to Belarus’ wish to receive much more than Russia was willing to offer.

According to some observers, there were six gas wars between Russia and Belarus although Belarus has been engaged in gas wars with Russia from the beginning of the post-Soviet era. 

In 1995, Minsk paid only 27% of the price of the received gas; in 1996 it paid 64%, and in December of 1996. Minsk was not ready to pay and for the first time, Russia limited the delivery of gas for three days. Still these conflicts were brief and had no direct implication for Minsk’s relationship with Moscow. 

In 1999, Russia and Belarus became a union state. According to the new provisions, Russia sent Belarus as much oil as it needed without custom duties. According to the same agreement, Belarus could export products made from Russian oil. Russia would have received 85% of the export custom duties while Belarus paid less than Russian refineries were paying. 

Still, problems emerged by the end of Putin’s first term, and in 2004, there was a second gas war. As with the first one, it was comparatively short and Moscow struck a compromise with Minsk, possibly owing to the residual Soviet legacy and possibly because of Moscow’s continuing hopes that a union with Belarus would lead to most of the post-Soviet republics around Russia seeing the advantages of such a union. 

The arrangement held until the beginning of Putin’s second term, and the change was related to evolution in the Russian elite’s geopolitical designs and the general political culture. 

Imperial pragmatism

Putin increased the neo-imperialist drive that re-emerged during the late Yeltsin era, or even before. In this context, not everything was translated into cash, and broader geopolitical designs were taken into account. One could see this in Putin’s behavior in Ukraine and Syria. In both cases, the Kremlin accepted financial losses as the price of its geopolitical goals.  

Putin’s administration is much more imperialistic and geopolitically oriented than its predecessor’s. Still, the story is more complicated than it looks at first glance. Yeltsin, following Gorbachev, had been engaged in the process of continuous geopolitical retreat, and the Russian elite was interested only in cash in dealing with the West.

But in its dealings with the former USSR, Yeltsin continued with basically Soviet policies which implied a cheap gas and oil supply and he made no effort to block oil and gas producing countries of the former USSR from sending gas or oil to European markets. Yeltsin engaged in these policies to maintain control over the former USSR, even if the policy cost the Russian treasury considerable sums of money.   

The policy was due to the existence of residual neo-Soviet arrangements, in which constituent republics of the USSR and even eastern Europe received gas and oil for a fraction of their cost, plainly because they were all part of the imperial commonwealth

The Putin era was clearly marked by the departure from the early approach to ex-Soviet republics. From now on they were not rebellious children who might at some point return to the family, but foreign countries in their own right. 

While they could, and should, be under Moscow’s sphere of influence, in Moscow’s eyes they were considered foreign entities with no clear ties to Russia and who would never be fully blended with Russia in the Soviet fashion. Seen in this light it was not appropriate for Moscow to indulge their whims until some imaginary reunion should take place.           

And this pragmatism influenced Moscow’s views of Minsk. Moscow was willing to provide some limited support, but not to support the ally regardless of the cost. This behaviour is distinct from the USSR, which never argued with its allies and proxies about the price of oil, gas or any other raw material. 

Dmitry Shlapentokh, Indiana University