Monday, January 8, 2007

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Next year, I'm putting my money on Latvia

Another January, another energy dispute between Russia and a former Soviet republic freaks out the Europeans:

Russia, accusing Belarus of stealing oil from a major pipeline, has shut off oil exports to its western neighbour, halting supplies to Poland and Germany and threatening wider disruptions in central Europe.

Russia’s pipeline monopoly Transneft said on Monday it was forced to act because Minsk had been siphoning off oil illegally from the Druzhba (’Friendship’) pipeline system.

The oil supply cut was reminiscent of a stand-off last year between Russia and Ukraine that hit gas supplies to Europe. It escalates a tit-for-tat dispute between Russia and longtime ally Belarus, who have imposed punitive oil levies on each other.

The European Union demanded an “urgent and detailed” explanation, a spokesman for Energy Commissioner Andris Piebalgs said. Europe is heavily reliant on energy powerhouse Russia for its oil and gas and extremely vulnerable to Russian supply cuts.

What's odd about this dispute is that Belarus backed down last week when faced with similar Russian pressure on natural gas. Lukashenka agreed (he wasn't thrilled, obviously, but he agreed) to a ramp up in Gazprom's natural gas price.

Writing in the Financial Times, Arkady Ostrovskyin reports that Belarusian dictator Alexander Lukashenko has backed himself into a corner:

Speaking for the first time since Belarus succumbed to Russia's demands to double gas prices and take control of half of its pipeline infrastructure, Mr Lukashenko said he had instructed his government to propose to Moscow that it pay for everything "they are getting here for free, from military objects to transit of oil".

Analysts said Mr Lukashenko's angry comments should be put down to the frustration of a leader push-ed into a corner.

"Lukashenko is in an extremely weak position - both economically and politically. He is already isolated by Europe and Russia is his only lifeline," said Christopher Weafer, chief strategist at Alfa Bank.

On New Year's eve, Gazprom, Russia's state-controlled gas group, forced Belarus to sign a new five-year gas deal which will bring gas prices to European levels by 2011. Russia also threatened to slap a full duty on Russian - currently duty-free - crude oil exports to Belarus of $180.70 (£92.71) per tonne from next year.

These measures would wipe out most of the $4bn plus subsidy that Mr Lukashenko has enjoyed over the past years and which helped him retain his popularity. However, unlike Ukraine, the former Soviet republic that irritated Russia by pushing closer to Europe, Belarus has few friends in the west and now risks straining its relationship with Russia to a breaking point.

The big question here is whether Western Europe will force Russia to turn the oil tap back on before Lukashenka is ousted by someone not stupid enough to annoy Belarus' only ally. From a human rights perspective, it would seem hard to believe that anyone in Belarus could be worse than Lukashenko. On the other hand, it's not clear that a replacement would be much better, either -- and there's the pesky problem of heating homes and such.

My prediction: If this kind of standoff lasts more than a week, Lukashenko is gone. But I suspect European pressure will force an agreement before Lukashenko is ousted.

Readers are invited to speculate which country will be the focus of next year's energy squeeze.

UPDATE: The Economist's Democracy in America blog thinks the target of this cutoff isn't Belarus -- it's Germany and Poland.

posted by Dan on 01.08.07 at 11:42 AM


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