Belarusian Bedfellow No More?

The long-standing romance between Belarusian President Alexander Lukashenko and Vladimir Putin appears to be coming to an end, as news reports this week revealed Russia’s plans to drastically raise natural gas prices and apply a hefty export tax of $180.70 per ton on crude oil to their reliably anti-Western neighbor. Poor little “Bat’ka” Lukashenko – he must be wondering what he is getting out this relationship. When he hasn’t been busy racking up human rights violations and rigging elections, he has passionately applied himself to perfecting the art of cow towing to Moscow. In return, President Putin was one of the first and the few (besides Chavez) to congratulate Lukashenko on his much disputed re-election last March. But will this loyalty continue without the benefit of energy subsidies? In regards to the price hikes, the FT reports:

The measures could sharply reduce or wipe out the $4bn-plus annual subsidy Russia provides to Belarus, which has helped Alexander Lukashenko, its authoritarian president, deliver higher wages and living standards to his 10m people. That, say analysts, could make it harder to sustain the support that saw Mr Lukashenko re-elected last March to a third presidential term with 82 per cent of the vote – albeit in a poll international observers condemned as below international standards. It could also drive a wedge between countries that have close cultural and historic links. “Raising gas prices to [market] levels is equivalent to breaking off relations entirely,” Mr Lukashenko recently told Russian journalists visiting Minsk. “We will survive, but you will lose the last ally.” Belarus pays only $46.67 per thousand cubic metres for Russian gas, saving it more than $3bn compared with market prices, but Russia is now pushing to increase the price to $200.

The end of an affair? The fact that Russia has extended its energy imperialism not only to the Ukraine, Georgia, and other countries with the capacity for a color revolution, but also to their so-called “brother” Belarus, reflects the increasingly tight production margins. Russia is in desperate need of income and foreign investment to develop and mobilize their oil and gas reserves, and following the debacle of Shell-Sakhalin debacle and the endemic inefficient, non-competitive domestic market, it is beginning to feel the squeeze. It’s natural that Russia should seek to progressively cut back on all subsidies to achieve efficiency and market competition, but to break rules, contracts, and agreements in making these adjustments is unacceptable (one Belarusian official says the new tariff violates a 2005 free trade agreement). Populism backed by resource nationalism is a precarious model – as soon as you lose your low energy prices, you lose your popularity. In Putin’s case, he is sacrificing Lukashenko’s political power to protect his own. All these considerations aside, we could see these latest energy assaults on Belarus as just the latest Russian energy heist: Belarus could be forced to give up half of its treasured state energy firm Beltransgaz. Talk about pre-emption!