On August 1, 2007, Russia’s state-controlled monopoly Gazprom, announced that it will nearly halve supplies to Belarus over an unpaid $456 million bill. The Gazprom announcement sent shockwaves throughout European capitals, worrying whether or not their energy supplies would be affected. An initial deadline was set for Belarus to pay the bill by August 3rd or Gazprom would reduce gas supplies to Belarus by 45 percent. As the August 3rd deadline approached, the crisis was slightly eased when Belarusian President Alyaksandr Lukashenka declared that his country would dip into its reserves to pay its existing debt to Gazprom of $456 million. After the declaration from Lukashenka, Belarus made a first payment of $190 million followed by another $100 million, prompting the Russian authorities to extend the deadline to August 10th or gas deliveries would be reduced by 30 percent for this upcoming winter.
The current gas standoff traces its roots to a hard-fought deal signed in the last minutes of 2006, dubbed the New Year’s deal. The agreement obligated Belarus to pay $100 per 1,000 cubic meters of gas instead of $46. The Belarusian economy was given time to adjust to the new prices by allowing Minsk to pay $55 per 1,000 square meters for the first half of the year, but must transfer the balance of $456 million to Gazprom by July 23, 2007. Also part of the New Year’s deal was that Belarus agreed to sell half of its national pipeline company, Beltransgaz, to Gazprom for $2.5 billion, thus increasing the power and influence of the world’s biggest gas producer.
Gazprom’s Recurring Theme
It is not the first time Gazprom has shut down or threatened to shut down gas supplies to Belarus. In 2004, Gazprom refused for five months to sign an annual gas contract with Belarus, pressuring the former Soviet state to accept a higher price and sell Beltransgaz on favorable conditions. Relations between Russia and Belarus deteriorated quickly when President Lukashenka accused Russian President Vladimir Putin of practicing economic terrorism against Belarus. The result was that Lukashenka agree to pay the higher prices, but retained Beltransgaz. A much harder time came at the end of 2006 when a dispute over oil duties led Russia to temporarily halt crude supplies to Minsk, leading to brief shortfalls in other European nations. The New Year’s deal, which is what the current crisis is about, more than doubled the gas price for Belarus.
Following the New Year’s deal, President Lukashenka issued several statements suggesting that Belarus might open its economy to western investors and abandon its plans of close cooperation with Russia. Lukashenka changed his anti-Russian tone when his overtures to the European Union weren’t greeted with open arms. The leader of the opposition Belarusian Popular Front, Vintsuk Vyachorka, believes that Gazprom’s threat to reduce gas supplies to Belarus is a step in Russia’s drive to absorb Belarus economically. “It is the beginning of another stage of Russia’s policy of pushing Lukashenka into a corner. Now Russia and the Kremlin are using Lukashenka as both an object and economic tool for the economic subjugation of Belarus,” stated Vyachorka.
Gazprom’s demands from Belarus is a reminder of similar demands during the winter of 2005 that forced Ukraine to pay roughly twice its previous rate for natural gas a year after protests known as the Orange Revolution put a pro-Western government in power in Kiev. Russia’s action against the new government of Victor Yushenko was seen as politically motivated and meant to punish Ukrainians for voting in a pro-Western government. By January 4, 2006, the Ukrainian government agreed to pay the new price.
Energy Dependence
When Gazprom announced that supplies would be cut to Belarus, it sent an unseasonable chill through European capitals. Europe was reminded of the Russia/Ukraine crisis of 2006, which saw supplies to the European Union fall in the first days of 2006 when Ukraine began to siphon gas from the transit pipelines. The tough tactics of Gazprom are affecting customers farther west along Europe’s natural gas pipelines. It raises worries about the reliability of Russian supplies and Europe’s increased dependence on Russian energy. The latest announcement by Gazprom threatening Belarus caused grave concern in Poland, which imports nearly 60 percent of its gas from Russia. Polish Economy Minister Piotr Wozniak was quoted as saying “We can’t accept suggestions that our supplies could suffer due to a dispute between Gazprom and Belarus.” Poland, Lithuania, and parts of Ukraine and Germany are supplied via the pipeline that crosses Belarus.
Throughout the latest crisis, Gazprom officials assured customers in Europe that there would be no interruptions in the gas supply. European offices worried that if Belarus was cut off that they would skim gas from exporting pipes to meet demand. Currently, the European Union gets between 25 percent and 30 percent of its gas supplies from Gazprom. Europe’s growing dependence on Gazprom has given the Kremlin more leverage over the European continent, from Finland to Germany to Italy.
Gazprom claims it is innocent of any wrongdoing in this case as it is doing what was entitled to them under contract with Belarus. With the rising demand and price of oil around the world, Russia’s energy giant wants to raise prices across the board and is no longer satisfied with Belarus paying “rock-bottom” prices. Until 2007, Belarus was a paying heavily subsidized rate for its gas, compared with Gazprom’s other customers. The small countries located to Russia’s west, often called transit states, have argued for a larger share of the profit through subsidized energy from Russia or as fees charged for transshipping natural gas over their territory. Gazprom takes an opposing position by arguing that higher payments are in line with the rising energy prices.
Future Outlook
The actions of Gazprom has provoked anxiety in the US and Europe as it seen as Vladimir Putin’s favorite weapon in a new kind of Cold War, not from nuclear annihilation but one where the fear is going without heat in the winter. Several of the states in eastern Europe have begun preparations for a possible energy crisis this coming winter, but currently all eyes are on Belarusian President Alyaksandr Lukashenko and whether or not he is going to pay the full debt by August 10, 2007.
