Yield of the "energy" accounts between Russia and Belarus

Yield of the "energy" accounts between Russia and Belarus

Lello Stelletti
Misunderstandings, arising regarding the price of natural gas that Moscow supplies to Minsk, are likely to undermine the bilateral relations between the two countries, which have so far been very close, and to negatively affect the entire Eurasian area. A new agreement also seems far off

The dispute between Moscow and Minsk on oil and natural gas prices has been going on for several months, and is likely to have negative consequences on the Russia-Belarus Union itself, the intergovernmental entity created with the aim of integrating the political, economic and social systems of the two countries. On Tuesday, March 7, the issue sparked a heated discussion between the heads of the governments of the two countries, who attended the meeting of the Intergovernmental Council of the Eurasian Economic Union (EEU), held in Bishkek, the Kyrgyz capital. Russian Prime Minister Dmitrij Medvedev, emphasized the importance of the Eurasian forum, stressing, however, that its meetings – at all levels – should not be exploited to address bilateral issues. "The member countries of the Eurasian Economic Union should not put pressure on Russian gas prices", said Medvedev, "if some countries present here were not part of this Union now they would be purchasing gas at European prices, starting at a figure close to $200 per thousand cubic meters". Medvedev noted that EEU members have increased their export volumes to the Russian market in recent years, receiving, in exchange, significant privileges in terms of energy cooperation and encouraging the opening of the labor market. The member countries of the Union, continued the Prime Minister of Moscow, must not allow the bilateral divergences to damage the entire organization. "I believe that abuse of Union rights is unacceptable", continued Medvedev, emphasizing that the main EEU countries require a kind of "supranational" integration that must remain "outside of the national or bilateral agenda". The response of the Prime Minister of Belarus, Andrej Kobjakov, confirmed the distance between Minsk and Moscow. "The gas crisis between Russia and Belarus, which is still unresolved, hinders the development of the market in the Eurasian Economic Union", he said, adding that "our partners are well aware of the fact that 96 percent of electricity in the Republic of Belarus is generated from Russian gas. How can you compete in the common market in this situation? What freedom of movement of goods, services, capital and labor can there be in this case?".

The match between Moscow and Minsk is played on prices

The energy dispute between the two countries dates back to the beginning of 2016, when the authorities in Minsk, believing the price of natural gas to be unfair, unilaterally decided to reduce payments, starting to accumulate a debt with Moscow that has become substantial over time. The Russian authorities, in response, reduced their oil supplies to Belarus by almost half. In October 2016, a compromise seemed to have almost been reached, but the deal fell through and, on February 3, 2017, Belarusian President Aleksandr Lukashenko announced court proceedings. The Russians, he said, "have started to breach all agreements and to cut their oil supplies. We will resort to legal action in accordance with our agreements". According to Lukashenko, Moscow is expected to have gradually reduced its oil supplies from 24 to 12 million tons per year. Also aware of the social risks of the crisis, the Belarusian president has instructed the government to find an alternative to Russian oil supplies, which is still supplied at subsidized prices. The Minsk authorities would like to retract natural gas prices, agreed when the cost of crude was still at $120 per barrel. Currently, given the fall in oil prices and based on current regulations, the fair price of gas should be $83 per thousand cubic meters. Whatever it may be, on January 9, 2017, the antitrust authorities of Moscow and Minsk made it known that they were unable to agree on annual rates for transporting oil through Belarus, and Lukashenko is now threatening to make a "sovereigntist" decision: "We will go ahead without Russian oil, although it will be very difficult for us. There is no doubt, however, if we are asked to choose between independence and Russian, Iranian, Azerbaijani or U.S. oil".

Moscow, for its part, claims to have provided and still provides, support to the Belarusian economy, losing, however, $22.3 billion in the period 2011-2015, in the context of duty-free oil supplies. "From 2011 to 2015, a share of 18-23 million tons of oil was delivered to Belarus on an annual basis under a tax-exempt regime. This resulted in loss on Russia’s financial statements of $22.3 billion. All this is nothing but the result of the direct and indirect support to the Belarusian government", claimed the Kremlin’s press office.

A tension that affects the entire Eurasian area

The energy dispute has led to a worsening of the relations between the two countries. On January 27, 2017, the Russian Federal Security Service (FSB), the successor to the KGB, announced the creation of special "border areas" in the regions of Pskov, Smolensk and Bryansk, at the border with Belarus. Regions in which surveillance has been reinforced, with the intention of combatting smuggling and the illegal drugs trade. Moscow has also banned the import of beef marketed by companies in the region of Minsk, believing it to have been produced in Ukraine or in European countries subjected to economic counter-sanctions. What has irritated the Moscow authorities has been the possibility of allowing the citizens of 80 countries to enter Belarus without a visa for more than 5 days. This has already created tensions in the past between the two countries, mainly caused by the poor conditions of the Belarusian state budget. Lukashenko has repeatedly "raised his voice" to get discounts on gas rates. The Russian authorities, however, now seem less willing to grant concessions, partly due to the prolonged economic crisis that has led to a national economic downturn. Lukashenko’s recent refusal to travel to St. Petersburg to sign Eurasian Economic Union documents caused bewilderment among the heads of state of the member countries (Armenia, Russian Federation, Kazakhstan and Kyrgyzstan). Belarus, for its part, has always advocated a solution to the energy crisis by the first quarter of 2017: a theory that currently seems unlikely.