Treading Lightly in Belarus

Gazprom’s harsh words for Belarus over unpaid gas bills two weeks ago turned out to be just that – harsh words.

The gas firm had given Minsk a due date of last Wednesday to pay $231 million in “debts” that Belarus had accrued by paying $150 per thousand cubic meters of natural gas January-April of this year instead of the $210 per thousand cubic meters that Gazprom had been expecting. And if no payment, then no more gas.

By Friday, debts were still unpaid and gas was still running. And Belarussian vice-premier Vladimir Semashenko told the Belarussian parliament that Belarus will pay off the $231 million amount, but not until some time between August and November.

What did Russia have to say in response? Actually, nothing. Putin told his parliament that Belarus will be business as usual; Russia will continue to sell it gas at heavily subsidized rates ($150 per thousand cubic meters ).

This is only logical, given that Gazprom stands to lose 40% of its revenue this year. In such circumstances, its leadership board have to take the conciliatory approach.

The alternative would be a repeat of last winter’s Ukraine fiasco. Whatever benefits Russia derived from shutting off the pipes to Kiev, it paid for them heavily in the form of 4.5 billion cubic meters of natural gas that never reached customers. It was a problematic strategy then, and it would be a foolhardy one now – a company that is losing 40% of its business doesn’t make pains to lose any more.

Especially when those customers are clearly making plans to seek new business elsewhere. In this case, with Western Europe. President Alexander Lukashenko is setting out to establish a Belarus-EU free-trade zone within the next three-four years, and he has made some tepid overtures to human rights – freeing a few political prisoners – to soften European disapproval of his undemocratic governance style. These actions sufficed to move Europe to lift its travel ban on him and to grant Minsk 10 million euros to improve food produce for export.

“We honestly want to forge good ties, even if this may not be to somebody’s liking,” said Lukashenko (Any guess as to whom that “somebody” might be?).

He added that Russian trade spats with Belarus over milk, natural gas, and other commodities had prompted Belarus to look more to trade with the West.

And he said something key: Cooperation with Europe is “part of a strategic plan.”

Belarus is a small market for Russia’s exports, natural gas and otherwise, but it is a market nonetheless. The two nations share multiple lucrative trade deals that Moscow would prefer not to lose – among others, a $9 billion nuclear plant that Belarus contracted Russia to finance; and Defense Systems, an intergovernmental Belarus-Russia defense firm that will be marketing its Pechora 2M surface-to-air missile system to five countries in the near future.

Belarus, positioned squarely between Russia and Europe, is in a position to draw needed business from both. And, it is in a position to use one as a counterweight to the other when it needs to. If Russia starts applying adverse economic terms, Lukashenko can start making overtures to Europe. Likewise, if Europe wrings its hands too much over the lack of democracy in Belarus, Lukashenko can call on Russia for backup.

Russia has little to fear of Belarus abandoning Russia altogether. The Belarussian economy, with its reliance on Russia for more than half of its import commodities and its natural gas, would not survive without Russian business. Belarus is far from independent. But it is close enough to independence that it can, and will, keep Russian hubris in check.

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