Russian President Dmitri Medvedev ordered natural gas be cut to Belarus due to a price increase dispute and reported lack of payment by Belarus. The key issue to watch now is what will Minsk give up in the negotiations with Russia to keep Belarus from being completely isolated.
Russian President Dmitri Medvedev ordered natural gas to Belarus to be cut due to a dispute over unpaid supplies since the start of the year. Russia and Belarus have a long history of subsidized natural gas, however, in late 2009 both presidents agreed upon a quarterly increase in the price of supplies from Russia to Belarus. Previously, Belarus had been paying $150 per thousand cubic meters (tcm) for natural gas — Customs Union, in which the three countries would be integrated economically. For Belarus, this was the sure sign that it would not have to struggle under the high economic costs that Europe saw, especially in energy. But still Russia did not give Belarus a break — mainly because it didn’t have to. In the past week, even Belarusian President Aleksandr Lukashenko has come out and stated that his country should pay the subsidized prices for energy that Russians enjoy. But to Moscow, Belarus is not a part of Russia, just a weaker neighbor. Lukashenko even offered strategic pieces of Belarus' natural gas infrastructure to make up for the supply difference. But Russia is not interested because it already owns most of the strategic pieces it needs in that sector. There is one major piece that Russia is interested in picking up inside of Belarus. According to STRATFOR sources, Belarus is offering majority stakes in its refineries for a break in its natural gas and oil bills to Russia. Those refineries supply many Central European states like the Baltics, Germany and Poland — which Russia is eager to keep leverage on. In previous negotiations, Russia has had to adhere to some of Belarus' terms since it was still loyal to its former Soviet relationship. However, in the past six months, Russia has pulled neighboring Ukraine back into a pro-Russian stance. Ukraine carries 80 percent of Russia’s natural gas exports to Europe, whereas Belarus carries only 20 percent. Russia has already spoken to Kiev and its partners in Europe — like Germany and Poland — to ensure that supplies that transit Belarus will be rerouted through Ukraine should the cut-off continue. Whereas Belarus has been able to play hardball in negotiations in the past because of its loyalty to Russia, now Moscow has other options to continue to send natural gas to Europe while punishing Minsk for its insolence. The key issue to watch now is what Minsk will give up in the negotiations with Russia to keep Belarus from being completely isolated.