Russia bids to bring Belarus into line with gas war

* Moscow keen on customs union, furious about Bakiyev

* Dispute seen short-lived but long-term risks persist

* Kremlin still sees no alternative to Lukashenko

By Dmitry Zhdannikov

MOSCOW, June 23 (BestGrowthStock) – Russia’s “gas war” with Belarus
may be motivated by a desire to persuade its combative leader
Alexander Lukashenko to approve a new trade pact, surrender
major assets and show more deference to Kremlin will, analysts
say.

Russia has never before cut off gas supplies to its close
ally Belarus and neither side has explained publicly why a
payment dispute over the seemingly trivial amount of $200
million should have flared into a full-blown crisis.

The explanation, experts say, is that Moscow is hoping to
get its former Soviet dominion to fall into line, signing on to
a long-delayed customs union with Russia and to stop giving
refuge to an exiled Central Asian ruler who has crossed Moscow.

But in the long run, Lukashenko, criticised in the West for
authoritarian rule, poses a big challenge for Russian Prime
Minister Vladimir Putin and President Dmitry Medvedev in their
fight for control over post-Soviet territory.

While Lukashenko has irritated Moscow with his independent
approach, Russia’s rulers fear anyone who succeeds him might
wrest the country from Moscow’s grip and into a Western embrace.

“Lukashenko realises he has to bow to Moscow’s demands and
has simply raised the stakes dramatically to gain as many
concessions as possible,” said Fyodor Lukyanov, editor-in-chief
of the magazine “Russia in Global Affairs”.

Moscow accuses Minsk of having amassed a $200 million debt
and has reduced gas supplies, demanding immediate payment.

On Tuesday, Lukashenko said the two nations were facing a
full-fledged “gas war”. On Wednesday, his government ordered
suspension of Russian oil and gas transit to Europe from
Thursday if Russia did not pay debts for gas transit.

Energy markets have stayed largely unmoved so far; in
contrast to a similar gas row between Russia and Ukraine in
January 2009 when prices spiked on supply shortages, tarnishing
Russia’s image as a reliable producer and spurring a European
quest for new suppliers.

“The closer to winter those negotiations drag on, the
greater the risk of a market-relevant cut off to Europe,” said
Jenia Ustinova of the Eurasia think-tank.

Russia, the world’s largest energy exporter, supplies Europe
with 25 percent of its gas needs, with four-fifths of that
flowing via Ukraine and one-fifth via Belarus.

Belarus has a number of lucrative enterprises such as oil
refineries which it has promised to sell to Russian firms; but
it has repeatedly rowed back on its pledges thus further
angering a Kremlin keen to increase its presence abroad.

It co-owns gas pipelines in Belarus but has hinted it would
prefer to fully control them.

ELECTION FACTOR

Belarus is to hold presidential elections next year and
Lukashenko, who has ruled the country since 1994, has pledged to
keep raising state wages and salaries. That leaves him
vulnerable to Moscow, which has begun scrapping subsidised
energy exports to its neighbours.

Russia’s energy subsidies to Belarus amount to $7 billion a
year as Minsk pays the lowest price among Russian gas customers.

Minsk has bridled at recent increases, saying it should pay
less if Moscow is serious about close ties. Lukashenko has also
courted the West and sought other energy sources.

“Moscow is trying to keep Belarus in its orbit by gas
politics by hitting Lukashenko’s social contract, in which he
delivered stable prices and living standards in return for
power,” said Jana Kobzova, analyst at the European Council of
Foreign Relations.

But unlike previous disputes, when Lukashenko attacked
Moscow mainly for energy pricing, the latest row shows the
Kremlin may be about to lose control over him altogether.

Analysts said Lukashenko has particularly angered Moscow
this year by repeatedly turning down the Kremlin’s proposals to
set up a unified customs union.

“Russia needs the customs union as it is keen to repair
production chains that existed in the Soviet Union,” said
Lukyanov who said he expected Lukashenko to agree to the
creation of the union next month when talks are due to resume.

Ustinova said ties could not be easily fixed after
Lukashenko gave refuge to ousted Kyrgyz President Kurmanbek
Bakiyev, despite Moscow’s support for the new Kyrgyz leadership.

Lukyanov agreed that by giving Bakiyev refuge, Lukashenko
showed he was prepared to challenge Moscow’s supremacy on the
territory of the former Soviet Union.

“The Kremlin would be delighted if Lukashenko simply
vanished. The only problem for them is that whoever replaces him
will inevitable flirt with the West while Lukashenko is bound to
look only at Russia,” he said.

Investing Analysis
(Additional reporting by Ben Judah, Writing by Dmitry
Zhdannikov; editing by Ralph Boulton)

Russia bids to bring Belarus into line with gas war