Page 52 - bne magazine March 2017 issue

52 I Eastern Europe bne March 2017
Fraternal strife as Belarus tests Russian patience
Nick Allen in Warsaw
In a year when Belarus will see its limited financial reserves badly eaten away by debt repayments, an escalat- ing energy pricing dispute has propelled it into risky brinkmanship with Russia, the mainstay of its economy and geopo- litical alignment since the 1991 Soviet break-up.
On February 16, Reuters reported sources as saying that Belarus’ Bel Oil bought 80,000 tonnes of Iranian Light and
Heavy crude oil from National Iranian Oil Company (NIOC) for loading in Febru- ary. This is the first time that Belarus
has bought Iranian crude, and follows news in October that, several years after imports of non-Russian oil into Belarus ceased, the first cargo train carrying Azerbaijani oil reached a refinery in the Belarusian city of Mazyr.
What lies behind Belarus’ move to diversify its oil imports is an increasingly acrimonious dispute with its traditional oil supplier of Russia, which began over unpaid bills for Russian natural gas but which now threatens to spiral into a full-blown diplomatic crisis between the two “fraternal” nations.
Belarus earns most of its export revenues from importing cheap oil from Russia, refining it and selling it on at much higher prices to European clients. But from July 2016, Russian oil pipeline monopoly Transneft pumped 40% less oil to Belarus than in the second quarter and has threatened to halve exports in 2017 to 12mn tonnes a year because of a dispute over money owed to Russia for natural gas supplies. In early 2016, Minsk unilaterally dropped the price it pays for Russian gas to below $80 per 1,000 cubic metres instead of the $132 set in the current contract with
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Gazprom, saying this was fairer and in sync with earlier agreements. Russia has demanded immediate payment of Belarus’ debt for the gas, saying it had reached around $550mn as of January 28.
The knock-on effects have been immedi- ate: exports of Belarusian petroleum products in volume terms last year declined by 19.3% year on year to 12.3mn tonnes, and in value terms by 39.2% y/y to $3.78bn. And the dispute has spilled over into other areas: most recently, Russian sanitary watchdog Rosselkhoznadzor slapped an import ban on Belarusian beef, prompting Belarus’ spikey, authoritarian president, Alexan- der Lukashenko, to talk about giving that agency’s head a taste of incarceration if he should ever cross the border. (Rosselk- hoznadzor then cancelled a scheduled trip by its staff to Belarus in February, saying “a number of its inspectors fear provocations from the Belarusian side”.)
Lukashenko has remained defiant in the face of the Russian pressure, declaring that, “independence cannot be compared with oil” and that his country will find other suppliers if need be. Hence the Azeri and Iranian crude deliveries. And reports, probably exaggerated, have begun circulating that Belarus could even pull out of post-Soviet integration struc- tures like the Russian-led trade bloc the Eurasian Economic Union (EEU) and the Collective Security Treaty Organisation (CSTO). But while Lukashenko this year sharply questioned the benefits of EEU membership, he has reaffirmed his com- mitment to remaining in these groups.
A slight pivot to the West
There is much more to this dispute than just an unpaid gas bill. A quarter century
after the dissolution of the Soviet Union, Belarus is at a crossroads in its develop- ment. Once dubbed “Europe’s last dicta- tor”, President Lukashenko now appears to want at least a partial national and personal reconciliation with the West. Within six months of his release of jailed political opponents in August 2015, the EU brought an end to most of its sanc- tions that were imposed five years earlier after elections turned violent.
In February his government took the bold step of granting visa-free short-term entry to Belarus for citizens of more than 80 countries, including the whole of the EU. “Lukashenko’s baby steps towards visa lib- eralisation do not come out of the blue,” the Economist noted, and are “another stage in the gradual, tentative rapproche- ment between the EU and Belarus”.
While this also reflects the need to attract more foreign investment, none of it sits well with Moscow, which sees Belarus as its incontestable sphere of influence and is still bristling from Minsk’s refusal last year to allow the construction of a Rus- sian air base on its soil.
But the parlous state of Belarus’s finances leaves it highly vulnerable
to Russian coercion. As the national reserves remain stuck below $5bn,
the government’s external debt had climbed to $13.5bn by December. This year it needs to repay and service about $3.5bn in internal and external debt.
Belarus also faces another year of recession after a 2.6% contraction in GDP in 2016 and 3.9% in 2015. It is the only country in the Commonwealth of Independent States (CIS) that is expected to see its economy contract in 2017,