Long Pipelines Make Bad Neighbours

Almost exactly a year after a payment dispute with Ukraine led Russia to cut off gas deliveries to its European customers in a misguided attempt to force Kyiv to pay up, a similar dispute between Russia and Belarus threatens to disrupt deliveries of Russian oil to Europe. As with the Moscow-Kyiv "gas war" in January 2009, which left vast swaths of central and southern Europe without gas, the dispute with Belarus is only in part about money. It is also a reflection of the changing relationship between Russia and its one-time partners in the former Soviet Union, many of which are seeking to escape their political and economic dependence on Russia. And the implications could be serious -- not just for Russia, Belarus, and its neighbors, but also for the balance of power in Europe generally.

The Russia-Belarus dispute became public just after the new year, with the Dec. 31 expiration of an existing contract for deliveries of Russian oil to Belarus through the so-called Druzhba (Friendship) pipeline.

Under the terms of the contract, Belarus did not pay customs duty on oil imported from Russia. Minsk did not use all of these oil imports domestically, however, sending much of it on to Europe and keeping the customs receipts, despite participating in a customs union with Russia. The profits from reselling Russian oil have long been an important source of hard currency for the authoritarian government of President Alyaksandr Lukashenka, making up around a third of Belarus's export revenue.

In 2001, Belarus unilaterally canceled a contract that mandated the sharing of these revenues, leading to substantial losses for Russian pipeline monopoly Transneft and the Russian state budget. Now, Transneft is demanding that Belarus pay full import duties for the portion of Russian oil that it resells on the European market, a demand that could cost Belarus as much as $5 billion per year. The Belarusian government argues that the Russia-Belarus customs union obviates the need for Minsk to pay duty on imports from Russia. Although deliveries through the Druzhba pipeline have not, as of mid-January, been cut off, the prospect that Transneft (whose chairman is Russian Deputy Prime Minister Igor Sechin, a close confidant of Prime Minister Vladimir Putin) will turn off the taps to force compliance from Minsk is clearly one that has European leaders worried because the European Union imports about a third of its oil from Russia, mostly via Belarus. Already, the prospect of supply disruptions has driven U.S. crude oil prices to a 15-month high, presumably to Moscow's delight.

Long Moscow's closest ally among the post-Soviet states, Belarus in recent years has increasingly become a headache for the Kremlin. Along with the Russia-Kazakhstan-Belarus customs union, Minsk and Moscow are joined in the so-called Russia-Belarus "union state," a kind of halfway house on the way to political integration. Yet like Ukraine before it, Belarus has become wary of being overly dependent on Russia and has sought more room to maneuver internationally, particularly after the August 2008 war in Georgia. Like other post-Soviet leaders, Lukashenko is worried about the precedent of Russian troops intervening in a region that Russian President Dmitry Medvedev referred to as Russia's "zone of privileged interests."