Moscow-Minsk dispute leaves Europe in a quandary

Moscow-Minsk dispute leaves Europe in a quandary
By Arkady Ostrovsky and Quentin Peel
Copyright The Financial Times Limited 2007
Published: January 8 2007 19:37 | Last updated: January 8 2007 19:37


Russia has very few friends among the former Soviet republics. Its spat with Belarus suggests it is fast losing one of the last.

In spite of the mercurial moods of Alexander Lukashenko, Belarus’s authoritarian ruler, the country has long been one of Russia’s closest allies, enjoying its generous subsidies in the form of cheap oil and gas. In reality, the Kremlin has been getting increasingly irritated with the antics of the man it has kept in power.

Kremlin officials seem to have decided that the dubious political benefits of supporting Mr Lukashenko are now outweighed by his failure to show respect for the Russian president. In a Russian election year, they seem determined to inflict a serious blow to his prestige and demonstrate their own strength.

For the European Union, the confrontation between the two erstwhile allies presents a dilemma: the EU members have no love for Mr Lukashenko and have long sought to persuade Moscow to cut off his sub-sidies. But equally, they do not want to encourage the Kremlin to use its energy supplies for political purposes, and nor do they want the pipelines to dry up.

On paper, Moscow and Minsk were supposed to be working towards a political and economic union, including a single currency. In practice, the idea has lost its appeal to Mr Lukashenko, ever since he realised that the merger was more likely to be a takeover and his own role in the new union would be reduced to that of local governor.

Observers in Moscow say there is no love lost between Vladimir Putin, Russia’s president, and Mr Lukashenko. But they also say that while Mr Putin loathes his Belarusan counterpart, he is even less well-disposed to the idea of Belarus being swept by a pro-western uprising. Hence the Russian support for Mr Lukashenko’s re-election last year.

But despite his material backing, Mr Putin has seen little in return from his Belrusan colleague, and his patience appears finally to have snapped.

Belarus used to receive Russian crude oil duty free and resold it in the form of refined products at a hefty profit. It was supposed to hand on 85 per cent of the profit to Moscow but had long stopped doing so. Moreover, according to Andrei Sharonov, Russia’s deputy minister for economic development, Mr Lukashenko imposed arbitrary taxes on Russian oil companies and made them sell oil to Belarusan intermediaries.

On January 1, Russia introduced a standard $180 export duty on its crude oil, depriving Mr Lukashenko of an annual profit of nearly $2bn. But the Belarusan leader responded by slapping a duty of $45 per tonne on Russian oil transiting through Belarus.

“If those in Russia, choking on this influx of petrodollars and other sources of hard currency, are still willing to make a scapegoat of Belarus . . . then let’s ask the Russian Federation – so huge and so rich – to pay us in full for our services,” Mr Lukashenko said.

Moscow says the unilateral imposition of an export duty on oil transit breaks every international norm and refuses to pay. But Mr Lukashenko decided to play a hard-ball game and on Saturday started to take Russian oil from the pipeline as “a payment in kind”.

Whatever the cause, this latest interruption of Russian energy supplies to Europe in just over a year is likely to dent further its reputation as a reliable supplier. But Belarus has more to lose. Some 50 per cent of all Belarus exports go to Russia and a full trade war would be disastrous for the Belarusan economy and its political regime. Mr Lukashenko has no support in Europe or in the US. Russia is his only lifeline.

For the EU, the dispute opens the awful prospect of having to choose between an authoritarian but relatively independent Belarus, or an unpredictable change of regime with Moscow calling the shots.