Talking Tough on Natural Gas

Russia turned off the natural gas lines to Ukraine last winter in a dispute over gas prices. It may now shut off the spigots, in like fashion, on Belarus.

Last Wednesday, Russia gave Belarus one week to pay $231 million for underpayment on natural gas delivered January-April of this year. Belarus had been paying $100 per cubic meters of gas during those four months, though the contract price was for $250 per cubic meter.

This episode is by no means the first time that Belarus and Russia have crossed words over natural gas. Gazprom threatened Belarus with a gas shutoff back in December 2006,  though some last-minute negotiating stopped the firm from carrying this out.

Whether negotiations would be as successful this time around has far-ranging repercussions, not only for communities in Belarus, but in many communities outside it as well: Most of the 10 billion cubic meters of natural gas that Russia ships into Belarus flows onward to consumers throughout Europe. Not unlike Ukraine’s gas, which thousands of Western Europeans sorely missed during last January’s Russia-Ukraine gas spat.

Belarus will probably propose to meet Russia halfway, according to Belarussian daily Belaruskaya Delovaya Gazeta, which cites Belarussian officials who expect that Belarus will offer to pay $150 per cubic meter.

They are taking a gamble, though, because economically speaking, their country is not in much of any position to bargain. According to the CIA World Factbook, Russia is the source of 59.5% of Belarus’ imports and the destination for 36.5% of its exports. By comparison, only 4.4% of Russia’s imports come from Belarus, and only 5% of its exports go to Belarus. Belarus needs Russia a great deal more than Russia needs Belarus.

Moreover, Russia graciously ended a months-long standoff with Belarus on Belarussian milk imports last week, as reported by RIA Novosti (Russian authorities had banned all Belarussian milk from Russia on June 6 because they deemed Belarus to be noncompliant with new Russian regulations on the export and import of dairy products. Belarus fired back by first dropping out of a new interstate security accord with Russia two weeks ago, and then imposing new customs controls on its border with Russia last Wednesday. Within hours of the border controls taking effect, Russia dropped the ban on milk). As such, Russian officials may feel that they are owed.

On the other hand, Russia is in the middle of a bid to jointly enter the World Trade Organization with Belarus and Kazakhstan. It might be inclined to hold off on any gas wars for the time being, lest it weaken its case for WTO membership by angering European WTO members who won’t like having their gas shut off yet again, not to mention appearing like an overall economic liability prone to volatile trade flows.

In all probability, this one-week ultimatum might really be a means to an entirely different end: upping the ante on construction of the Yamal-2 pipeline, which is expected to bypass all transit countries and thus render gas cutoffs of this kind unnecessary. If Dutch and German investors bankrolling Yamal-2 so much as hear that the status quo of existing pipe lines might mean future shutoffs of needed gas, they’ll probably get much more generous, and much more excited to see Yamal-2 completed very soon.

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