BELARUS NEWS AND ANALYSIS

DATE:

07/04/2006

A new gas war looms, with Belarus the loser

Evgeny Morozov International Herald Tribune

BERLIN The Kremlin prepared a truly original gift for the inauguration of President Aleksandr Lukashenko of Belarus, whom many in the West call "the last dictator in Europe." Gazprom, the Russian energy behemoth, set a deadline of April 30 for Lukashenko to either forgo a strategic Belarussian gas asset or start buying Russian gas at market prices as of 2007.

A new gas war is in the offing, posing more risks than any of the previous conflicts between Moscow and Minsk since the early 1990s.

Lukashenko's first option - to allow the transfer to Gazprom of the controlling stake in Beltransgaz, a state-owned Belarusian company in charge of the transit and distribution of Russian gas - would deprive him of his major bargaining chip with Gazprom. Lukashenko defends the low prices that Belarus pays Russia for gas as compensation for allowing Russian gas to transit to Europe. If Beltransgaz passes to Gazprom, Russia would no longer need to subsidize Lukashenko, who would be a mere consumer.

Under the second option, Belarus would buy Russian gas at market prices - three to five times the current price - and Lukashenko's economic miracle could unravel within less than a year, as the competitiveness of most Belarussian firms is tied to cheap Russian energy. Lukashenko would also lose the ability to earn unsupervised cash on reselling Russian gas, which would hamper his ability to pay off the farmers, pensioners and soldiers who support him.

Gazprom wins either way, acquiring control of Beltransgaz and reducing its transit risk, or getting much more cash for the gas it sells to Belarus.

Kremlin strategists waited just long enough to have Lukashenko win the elections in Belarus and President Viktor Yushchenko lose parliamentary elections in Ukraine. Ukraine's pro-Western orientation turns out not to matter, as Gazprom is threatening to charge market prices even to pro-Russian Belarus - but the Ukranians found out about it only after Yushchenko had been humiliated in the elections, with the gas crisis being among major causes for his defeat.

Now, facing unprecedented protests in Minsk, Lukashenko feels too insecure to argue with Moscow. The Kremlin rightly believes that a perplexed Lukashenko will sign anything.

President Vladimir Putin of Russia has also adroitly belittled Lukashenko - whose popularity in Russia is rising, according to opinion polls - by showing that subsidized energy supplies, which cost Russians from $3 billion to $7 billion a year, are behind Lukashenko's economic miracle. If Putin wants to prolong his rule by becoming the head of a newly revived Union State, a bankrupt or fully controlled Belarus without Lukashenko would easier to digest.

By instituting a gas-price hike for Belarus, Russia also distances itself from its earlier support for Lukashenko's dictatorial regime, which had undermined its credentials in the Group of 8. And as evidence that it is not using energy as a weapon, Russia could even cite its application to join the World Trade Organization as the reason for the hike.

The European Union might be the biggest loser in this war, however. Should Russia turn off the gas, Lukashenko will probably do what the Ukranians did - use the gas intended for the European consumers. But the main problem for the EU is not a possible temporary loss of gas supplies, it is the absence of any clarity on which side to support in the conflict.

The EU has been toying with the idea of imposing economic sanctions on Lukashenko, and has often scorned Russia for funding his regime with energy subsidies. But if Gazprom shuts off all gas supplies to Europe that pass through Belarus, the EU might want to ask Moscow to go easy on Minsk.

Putin's Russia, with a controlling stake in most East European and Central Asian energy distribution networks and with a stable demand from China, may yet present the biggest threat to the world's energy security - or at least to Europe's.

The G-8 meeting that Putin will host in St. Petersburg will be devoted to discussing energy security. To understand what this entails, imagine Prime Minister Silvio Berlusconi of Italy hosting a G-8 meeting on the relations among business, media and the state.

Source:

http://www.iht.com/articles/2006/04/07/opinion/edmorozov.php