Russia will supply Belarus with natural gas this year under the same terms as it did in 2019. The oil price will increase. Those are the results of the talks between Russian President Vladimir Putin and his Belarusian counterpart Alexander Lukashenko held on February 7 in Sochi.
Russia is showing no will to keep subsidizing the Belarusian Soviet-style economy. After the Russia-Belarus Union State integration plans failed last year, Moscow refused to provide loans to Minsk, and the two sides did not reach a compromise over the oil price for Belarus. In the meantime, China transferred a $500 million loan to “the last European dictatorship”, and the United States is seeking to improve relations with Russia’s only ally in the West.
For years Russia has been providing cheap oil and gas to its Western neighbor. The Russian Federation also opened its market for Belarusian goods even though it occasionally imposed bans on certain products, as a method of applying pressure on Belarusian President Alexander Lukashenko. In addition, Minsk has received from Moscow credits worth billions of US dollars. According to official information, in June 2019 Belarus owed Russia $7.55 billion. In an exchange for further credit arrangements, as well to subsidize the Belarusian economy, the Kremlin demanded from Minsk to deepen integration into the Union State of Russia and Belarus. President Lukashenko refused as he tends to preserve Belarusian sovereignty, as well as his nearly unlimited power.
The idea of the Union State of Russia and Belarus has been discussed since the 1990s, and Lukashenko himself proposed it to former Russian President Boris Yeltsin. In 1999, both sides signed an agreement for the creation of the Union State. Ever since, the Union State of Russia and Belarus exists only on paper, with the exception of the emergence of several supranational bodies and in the media. Minsk has long benefited from buying subsidized oil products from Russia and re-exporting them. Naturally, Belarus is interested in keeping the status quo, but the Kremlin has another agenda. Russia is willing to keep providing cheap energy to Belarus only if the two sides agree on integration issues. Otherwise, Moscow will gradually increase prices for oil and possibly for gas as well, and Minsk will eventually have to buy Russian energy at the market price, which will affect Belarusian economy.
In spite of that, it is unlikely that President Lukashenko will make any concessions to Russia. As of January 2020, Russia stopped supplying oil to Belarus, and Minsk started importing crude from Norway. Belarus might also start buying gas from this country, and potentially even from the United States. The US Secretary of State Mike Pompeo recently said that Washington is willing and able to provide Belarus with 100% of its oil and gas.
“Our energy producers stand ready to deliver 100% of the oil you need at competitive prices. We’re the biggest energy producer in the world and all you have to do is call us”, said Pompeo who is he first secretary of state to visit Belarus in 26 years.
Russia, on the other hand, does not seem to oppose Lukashenko’s flirting with the United States. The Kremlin does not even mind the Belarusian pivot to China. In December 2019 China transferred a $500 million loan to Belarus. The Belarusian government started negotiations with China in June shortly after its request for a loan of $600 million was refused by Russia. As Belta news agency reported, the $500 million loan that China provided to Belarus is not tied to any particular project and can be spent on any goals, including paying off and servicing the state debt, keeping up Belarus’ gold and foreign exchange reserves, and assisting with the development of Belarus-China trade.
“China is a priority for our country. We rely on China’s help and support a lot”, recently said Lukashenko.
Back in April last year, when Belarusian leader visited China, the two countries sealed two other major loan agreements. The Chinese Development Bank provided 100 million euros to Belarusbank, while the Export-Import Bank of China agreed to supply 65.7 million euros to Belarusian Railway.
It is worth mentioning that Beijing played a major role in helping the country develop its own missile system – the Polonez. Also, China built the Industrial Park near Minsk, which is seen as the most important Chinese project in Europe. Officially, China sees Belarus as the “gateway to Europe”, even though Belarus is not a member of the European Union, and any goods that it produces are subject to steep tariffs if they enter the EU market.
Another problem is the fact that both Belarus and China are export oriented economies. It is extremely unlikely that Belarusian companies will be able to sell their goods to the Chinese market. On the other hand, Russia can easily impose high taxes on Belarusian goods and Minsk would face serious economic crisis.
Since Belarus does not have any significant natural resources, Russia is treating it merely as a reliable transit country for Russian gas and oil. Many Russian politicians openly say that their country should stop “feeding” Belarus. From a purely economic perspective, such attitudes perfectly makes sense. However, politically, if Russia and Belarus keep distancing from each other, the Kremlin might lose its only ally in Europe, which is also a member of the Russia-led Eurasian Union and the Organization of the Collective Security Treaty Organization. If that happens, there is no doubt that pro-Kremlin propagandists will try to portray it as another geopolitical victory. In the meantime, Russia will keep pressuring Belarus to either go for deeper economic and political integration, or to allow Russian oligarchs to privatize successful Belarusian companies, such as Belaruskali, which is one of the world’s largest producers of potash fertilizers.
President Lukashenko will likely try to protect the Belarusian economy from the Kremlin, but also from the International Monetary Fund, which is the US-backed organization that strongly insists on privatization. Since Lukashenko is expected to easily win presidential election in November, for the next five years Belarus will certainly try to balance between Russia, United States, China and the European Union.
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