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The Wall Street Journal: Belarus Yields to Russia

Deal on Gas Prices
Solidifies Success
Of Kremlin Strategy
January 2, 2007; Page A4

MOSCOW — The last-minute deal that sharply raises the price of Russian natural gas to Belarus highlights the success of a Kremlin energy policy that the West has denounced as bordering on blackmail. By showing that it is willing to cut off countries that won’t accept rate increases, Russia has ended an era of cheap energy supplies to former Soviet republics.

Russia’s natural-gas monopoly and its largest company, OAO Gazprom, announced the agreement early yesterday, hours before the company said it would shut down supplies to Belarus. The agreement more than doubles the price of gas to Belarus, to $100 per 1,300 cubic yards from $47. Moscow also said it would acquire a 50% stake in the Belarus gas-transit monopoly, Beltransgaz, an asset Minsk for years has refused to surrender.

• The News: Russia’s natural-gas monopoly doubles the price of gas it sells to Belarus.
• The Issue: Russia continues to win higher prices but is criticized for tactics.
• What It Means: Even higher prices for Belarus in coming years.
The agreement, announced as the Russian capital celebrated the New Year, also will gradually step up the price of gas for Belarus toward levels that Europe pays, near $300, in coming years. It follows months of negotiations in which officials from Moscow threatened to cut off gas to Belarus in midwinter and officials from Minsk threatened to disrupt Russian gas supplies to Europe.

Ultimately, the Belarus side flinched and agreed to pay a touch less than the $105 per 1,300 cubic yards the Russians were demanding. “The Belarussian side, in a difficult atmosphere on the eve of the new year, signed an agreement on unfortunate terms,” Agence France-Presse quoted Belarus Prime Minister Sergei Sidorsky as saying.

The agreement caps a year of rate increases for states of the former Soviet Union that its neighbors and the West have called politically motivated.

Russia cut off gas to Ukraine last Jan. 1 when negotiations with Kiev failed, a move that was denounced by European countries, which saw their supplies flowing through Ukraine disrupted. Afterward, Vice President Dick Cheney accused Russia of using energy as an instrument of intimidation and blackmail. Europe started stockpiling gas as a hedge against future disruptions and exploring alternative suppliers.

Gazprom said it is just trying to put its relations with neighbors on a market-oriented footing and end subsidized energy supplies to the countries of the former Soviet Union. Though Russia was hurt by criticism of the Ukrainian cutoff, its eventual agreement with Kiev nearly doubled prices for gas last year and raised them to $130 for 2007. Moscow also has sharply raised prices for Azerbaijan, Georgia and Moldova.

“The Russians put up with a lot of damage to their reputation after Ukraine, but now they have their customers in line,” said Jonathan Stern, head of gas research at the Oxford Institute for Energy Studies. “Every [customer] knows Russia will not let them off the hook easily.”

Until recently, Belarus had been an exception. Led by its autocratic president, Alexander Lukashenko, Belarus for years had benefited from the comparatively inexpensive supply of natural gas, a support to its state-managed economy. It is Russia’s second-largest consumer of natural gas among former Soviet states, and last year, Minsk paid $47 per 1,300 cubic yards — roughly the price of gas for users inside Russia.
But relations between Moscow and Minsk lately have been strained: Though putative allies, each blames the other for failing to follow through on plans to unite the two countries. Moscow is ending duty-free oil shipments to Belarus, a move that is expected to cost more than $1 billion in profits to the country’s refining industry. Last week, Russian officials warned that Belarus would face a shut-off of natural-gas deliveries at 10 a.m. yesterday if it didn’t agree to higher natural-gas prices. Belarus, in turn, threatened to disrupt pipelines on its territory that carry more than 20% of Gazprom’s exports to Europe.

Belarus had hoped European countries would panic at the prospect of another gas cutoff and put pressure on Russia to make a quick deal with Minsk, said Chris Weafer, chief strategist at Alfa Bank in Moscow. But none wanted to do any favors for Mr. Lukashenko, widely regarded as Europe’s last dictator, he said. Many had stockpiled gas supplies to last for several weeks in case of a cutoff.

Belarus “played a game of chicken with Moscow, and they saw that Moscow would not blink,” said Mr. Weafer.

Mr. Weafer said Belarus has managed to soften the blow of the rate increase by agreeing to sell off a portion of Beltransgaz, thus giving Belarus nominally lower gas prices than its neighbors. But he expects Gazprom to push for total control of the transportation company in coming years.

“Russia will have control of that company by the end of the decade, that’s for sure,” he said. “Belarus doesn’t have much choice. What are they going to do? Go without gas?”

Write to Alan Cullison at [email protected] and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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