The ideal of Brotherhood is lost

in battles over oil and gas prices

By Vladislav Inozemtsev

The Moscow Times

A division of The New York Times

(Vladislav Inozemtsev is a professor of economics, director of the Moscow-based Center for Post-Industrial Studies and editor of the Russian edition of Le Monde Diplomatique.)

After Moscow and Kiev managed to settle their dispute over prices for Russian gas deliveries at the beginning of last year, a concerted effort was made by the Russian side to portray the whole imbroglio as an anomaly. But the New Year's holidays again brought another energy standoff — this time with Belarus over oil and gas prices — and the realization that showdowns between Russia and its closest neighbors over energy resources have likely become the normal state of affairs. No country in the neighborhood can now claim to be an exception. From Azerbaijan and Georgia to Ukraine and even Belarus — there appears to be a broad new theater of war in the making for both Gazprom and the Kremlin.

Is it fair to consider this 2007 offensive a "just war?" There should be no doubt on this front. President Alexander Lukashenko's Belarus is a sovereign state with its own version of "sovereign democracy" and a just as sovereign economy that has managed to provide a relatively comfortable and stable standard of living for its people by reselling Russian oil and gas and smuggling foreign goods into Russia without paying duties or taxes.

In 2006, for example, Belarus needed about 10.5 billion cubic meters of natural gas to keep its homes heated and its businesses running. But the amount of gas it bought from Russia was much higher, at almost 19 bcm. Given the bargain-basement price of $46.80 per 1,000 cubic meters it was paying Russia for gas, and the price of $230 to $260 per 1,000 cubic meters it was charging its European customers, Lukashenko was doing pretty well in what amounted to a wholesaling operation.

Lukashenko's activities in the oil business were not quite as profitable. In this case Belarus' only advantage was that it didn't have to pay Russian export duties, which had reached $180 per ton by the end of 2006 and accounted for about half of the price of oil delivered elsewhere. Given GDP growth of about 10 percent in 2006 — about 3 percent higher than that in Russia — Belarus could allow the import of consumer goods to rise by a staggering rate of more than 54 percent without any worries about negative economic fallout. The bottom line is that Moscow was subsidizing Minsk to the tune of more than $7 billion per year.

The obvious question is: what was Russia receiving in return? Formally, these arrangements were the result of an official union between Russia and Belarus, put in place by Lukashenko and then-President Boris Yeltsin to allow Yeltsin to maintain the illusion that he would be able to restore the late Soviet Union in some form. This illusion was vital to helping him turn back a challenge from Communist Party leader Gennady Zyuganov in the 1996 presidential election.

But any further development of the union remained only talk and, no real supranational institutions were ever created. For 10 years, therefore, Lukashenko had been selling Russia an intangible asset, the chance at maintaining its sense of empire, at a steadily increasing price.

But as oil and gas prices soared after 2000, Russia began to develop a sense of its own power based on its energy resources, rendering superfluous any attempts to play up a union with "Europe's last dictatorship." Sure, close ties with Belarus still provided brotherhood and solidarity, and these maintained their own value for a while.

One out of four Belarussians killed in World War 11

This brotherhood was based more on a shared past than collaboration in any significant way in the present. In World War II one out of every four Belarussians was killed, either as soldiers fighting to defend the Soviet Union or by Germans in their villages or concentration camps. After the invaders laid waste to their homeland, the survivors returned to nothing. It was with the help of all of the peoples of the Soviet Union that Belarus was rebuilt. The experience of this "greatest generation" did the most to cement Belarussian-Russian ties.

As the last generation that experienced these times is passing away, however, so is this sense of unity. The new elites in both Minsk and Moscow are more interested in raising their own incomes and securing their own power by creating new national ideas, and these often cross the line from the national to the nationalistic.

The situation in Belarus today is part of a larger trend. The days of brotherhood have also come to an end in the case of Ukraine, after the 2004 presidential elections there had to be run a second time. The recent campaign against Georgians made it clear that brotherhood would not form the basis for official relations on this front either.

So if the wholesale value of brotherhood has fallen, the obvious question is: "How low?"

Not dramatically, as it turns out. Even with the new oil and gas contracts between Moscow and Minsk, Russia will still sell energy resources to Minsk at a total discount of about $5.8 billion in 2007. This is equal to roughly 10 percent of Belarus' gross domestic product and 41 percent of total projected budget revenues.

Nevertheless, Lukashenko still appears to be disappointed with, if not angry at, the revised conditions. Given the control the state has over the media in Belarus, you can be sure that Lukashenko will launch some kind of sophisticated anti-Russian campaign without any real danger that the Kremlin will be able to fight back.

So an evaluation of the results of the "winter campaigns" of 2006 and 2007 reveals paltry gains for Russia at best. Russia now sells gas it buys from Turkmenistan for $100 per 1,000 cubic meters to Ukraine for $130. This is a much less lucrative business than in 2005, when the price paid to Turkmenistan was just $35. With transportation costs factored in, there's not much left in the way of profit. On the Belarus front, Russia ends up receiving about $1.5 billion in cash as compensation for the innumerable political problems that still remain to be resolved.

As justified and reasonable as the goals of both campaigns might have been, the way in which they were mismanaged meant that they brought no real benefit. The Russian leadership still fails to see that if it wants to be recognized as a non-threatening energy superpower, the only strategy is to switch from the pipelines that make it dependent on neighboring countries, to the freedom that shipping liquefied natural gas from its Baltic, Northern and Pacific seaports offers. There is really no future in waging wars with its neighbors over gas that is intended for an increasingly unfriendly Europe.

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