Belarus reaches last minute deal with Russia over gas price

LukashenkoJust minutes before Gazprom implemented their threat to cut of gas supplies to Belarus, a deal was reached to secure gas deliveries until 2011.

Under the terms of the deal, Belarus will pay $100 per thousand cubic metres this year, but the price will steadily rise until it reaches around $250 per thousand cubic metres in 2011.  This will bring prices into line with the current market rate.

Belarus also – reluctantly – agreed to sell half of their gas distribution network to Gazprom for $2.5 billion.  Not such a great deal when you consider they originally valued the network at $16 billion.  The decision to sell a 50% stake was odd too – usually stakes of 49% or 51% are sold, to give someone overall control.  I’m at a loss to explain this aspect of the deal. 

As you can imagine – the Belarussian Prime Minister wasn’t happy:

“As you know, 60 percent of the Belarusian people are victims of Chernobyl [nuclear disaster]. So, we have to go to these victims of Chornobyl, we have to go to the elderly and explain to them that the price for gas has been raised twice more than we expected.”

So, don’t expect relations between Russia and Belarus to be quite as cosy as they have been over the past few years. 

But there is one small upside – Russia’s main gas ‘weapon’ in recent years has been the threat of ending gas subsidies to former Soviet states.  Once Belarus begins paying market rates, the Russian government will lose one of its main foreign policy levers. 

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2 Responses

  1. I think you’ve excessively minimized what Russia has done to Belarus’s gas assets, which is essentially to steal them the same way it stole Shell’s in the far East. This is an illustration of the fundamental corruption that permeates Russian society to the very highest levels of government, negating any real progress towards a civilized state. Meanwhile, the world continues to under-react, thus encouraging more outrage just as it did with Stalin and Hitler.

    What’s more, I’m not sure Russia will lose any leverage when the gas price normalizes. Instead of threatening to raise prices, it can simply threaten to cut off supplies entirely. If it threatened Europe that way, it would impact a much bigger market and hurt Russia’s bottom line, plus Europe could respond with economic warfare that could devastate Russia. But Belarus is totally alienated and cannot defend itself from such a move. On the other hand, the Kremlin has shown itself perfectly capable of simply killing any person who obstructs its desires.

    The real consolation is that one day Russia’s oil and gas reserves will simply run out, and then Russia will be consigned to the dustbin of history . . . that’s if it hasn’t totally destroyed its social and political structures in the meantime, which is likely.

  2. Andy says:

    Belarus got the raw end of this deal. Their negotiators found themselves in a corner, wriggled this way and that but, in the end, were squashed by Russia’s clout and Belarus’ need to stay warm and keep its factories running.

    However, I personally don’t have a major problem with the aspect of the deal that allows Russia to charge market rates. The majority of EU states, and the US I believe, think along similar lines, which is why Russia can take this approach.

    The only justification Russia can now have, in the eyes of the world for cutting off Belarus’ gas supply is if Belarus can’t pay its bills. And I can’t see a problem with that – if I can’t pay my own household gas bills, I would expect to go cold this winter.

    The distribution network sale is another matter entirely, though. Russia used undue influence to pressure Belarus into agreeing the sale, and I’m disappointed that Western governments haven’t raised more of a fuss about this aspect of the deal.

    As for Russia using similar tactics on the EU – I think you’ve outlined in your comment exactly why Russia couldn’t cut off gas supplies. The EU can fight back. Belarus can’t.