Belarus – Russia: Towards a revision of the alliance

Summary

In 2016, Belarusian-Russian bilateral relations were, in many respects, determined by the mutual disagreement on the value of each other’s services. Both countries were disappointed with the results of the partnership, as they obviously expected greater benefits from the membership in multilateral organizations, such as the Eurasian Economic Union and Collective Security Treaty Organization. Relations have undergone revision in almost all areas: politics, trade, energy, culture, and defense.

The tension was growing throughout the year. It was not relieved in any of the areas by the end of 2016. Disagreements, conflicts and disputes, nevertheless, did not lead to a full-scale crisis: both sides exercised caution, and did not risk the very basis of the partnership, as they were well aware of the limits of the pressure they can exert on each other. Belarus and Russia will apparently have to decrease the expectations from their cooperation.

Trends:

• Mutual support decreases due to a decline in benefits derived from the alliance;
• Russia creates its own transport, border and military infrastructure;
• Belarus makes attempts to strengthen its foreign policy independence and overcome the dependence from Russian energy commodities;
• Both countries are highly dependent on each other. For Belarus, this interdependence is critical.

General overview

Russia’s accession to the WTO and the launch of the Eurasian Economic Union led to a reduction in the benefits from the Belarus-Russia alliance: Belarus experiences heavy competition on the Russian market and the effectiveness of domestic market protection measures taken in relation to Russian and third countries’ commodities has declined. Sanctions against Russia have resulted in a decrease in Russia’s paying capacity that affects Belarusian exports to Russia.

The fall of world prices of oil over the past few years also had a negative impact on the benefits of Belarusian-Russian cooperation in this area, since the oil price preferences for Belarus have significantly decreased in comparison with other Eastern European countries. In this situation, each side attempted to adjust or revise existing agreements in its favor that led to a whole bunch of conflicts and disputes, which were not generally resolved by the end of the year.

The information component of this conflict, the dramatic intensity of which is very indicative, should be particularly emphasized. In 2015, Ukraine was in the focus of Russian propaganda. In 2016, Belarus was becoming a target of sharply intensified information attacks. The Belarusian leadership finally had to attend to information security issues. Among other things, this was manifested in the arrest of three contributors to the Russian news agency Regnum. Despite the informational aggression of the Russian media and the painful reaction of the Belarusian authorities, relations between officials, including the presidents, prime and foreign ministers, remained composed and quite ‘allied’ in this respect.

Almost the same (with certain reservations) can be said about the foreign policy coordination between Russia and Belarus. The reservations are related to the ambiguous position of Minsk on the Russian-Ukrainian conflict and the Crimean question, Lukashenko’s ‘initiatives’ on the involvement of the United States in the peacemaking process and Minsk’s attempts to strengthen its independence through intensified dialogue with the West and stepped up contacts with developing countries.

In general, Belarus showed caution, as its actions fit perfectly into the corridor of the Kremlin’s basic preferences. At the July session of the OSCE Parliamentary Assembly, Belarus did not vote for the resolution, which condemned the occupation of the Crimea by Russia, and, when voting at the UN General Assembly in December, Belarus was among the countries blocking a draft resolution on the Crimea, in which Russia was recognized as an occupying country.

Reduction in oil and gas rent: a long-lasting dispute and logistics factor

The oil and gas conflict, which broke out in 2016, was the longest one in the history of Russian-Belarusian relations.1 Since late 2015, Belarus had been unsuccessfully trying to change the price parameters set by the 2014 contract on Russian gas supplies2 and, in early 2016, independently switched to a price it thought to be fair. In fact, the contract provides for this possibility in case the principle of ‘equal profitability’ does not work in the EEU (the ultimate price is calculated according to the old formula, but it is not supposed to be over the ‘equally profitable’ one). Minsk independently determined the price ceiling of ‘equal profitability’ and was paying for gas the whole year being guided by these considerations.

Russia predictably voiced objections, and the parties were trying to come to a compromise the entire year, but failed to agree. For the first time, Russia used oil supplies as leverage in the dispute over the gas price. It cut oil supplies to Belarus by more than 5 million metric tons since the second half of the year.3 In 2016, supplies were reduced 20.8% (18.1 million metric tons against 22.8 million in 2015) in total that heavily affected a number of Belarusian economy indicators, including export revenues and GDP.

As a matter of fact, the gas dispute was more of an excuse than the main reason for the oil supplies cuts. Russian Transneft sought to ensure incomes from the operation of Baltic Pipeline System-2 (BPS-2), the new infrastructure of the Ust-Luga port, i. e. to redirect a considerable part of oil from the Belarusian to the Baltic corridor (like it was done with BPS-1).4 Besides, this redirection leaves duties on oil and oil products to Russia instead of Belarus. Most likely, if Belarus did not give a reason by underpaying for gas, the Russians would find another justification to reduce oil supplies to Belarus (although, perhaps, not in such a significant amount).

In the final reckoning, the underlying cause of the oil and gas conflict in 2016 (like all previous and probable future ones) is that Russia made one more step towards a bypassing logistics infrastructure, which makes it possible to be less dependent on transit countries, while the Belarusian leadership turned out to be unprepared to put up with the declining transit importance of the country and, consequently, to accept the drop in the price of Belarus’ transit services and, ultimately, a reduction in the oil and gas rent. Since both parties see the relative importance of their services and commitments differently, the oil and gas sector is likely to remain a potential zone of conflict in the foreseeable future.

Military and trade infrastructure

In 2016, the oil and gas collision was not the only cloud in the blue sky of the alliance. The bargaining over the placement of a Russian air force base in Belarus, which started in 2015,5 continued to gain momentum, but with a zero result. Belarus’ attempts to achieve supplies of new Russian weapons brought the same result. Russia came to the conclusion that it should reinforce the military infrastructure on its own territory near the Belarusian and Ukrainian borders and proceeded with the construction of a military base in Klintsy thus distancing itself from its major ally in the defense sector.

This trend extended to the trade infrastructure: in 2016, Russia continued to build elements of a trade border with Belarus, mainly because Belarus did not support Russia’s food anti-sanctions in retaliation to the sanctions against Russia. It should be noted that in recent years, Russia has been engaged in the arrangement of its borders with the surrounding countries with varying intensity, yet quite consistently. Belarus was no exception, although the special nature of the allied relations has been emphasized all the time.

The mutual trade turnover with the Russian Federation slightly decreased (94.8% against 2015) mainly due to a decrease in imports from Russia, reduced oil supplies making up a large proportion in trade. Belarus’ exports slightly increased (104.0% against 2015), which had a positive effect on the trade deficit, which decreased significantly in comparison with 2015 to USD 4,476 billion in absolute terms and reached about the same amount as in 2004, when the total turnover did not exceed USD 16 billion.

As seen in the table above, this is by no means the worst indicator of the bilateral trade turnover between Belarus and Russia, given that in 2015, its overall decline against 2014 was at 26.3% (USD 27,533 billion with a 6,755 billion deficit). It is, however, premature to speak about a revival of trade and economic relations in 2016.

The thing is that Russia and Belarus do not benefit from the membership in the Eurasian Economic Union: most tariff restrictions still stand and Russian departmental lobbies are busy initiating new ones. Belarus experiences real difficulties when trying to advocate the interests of its producers in the Eurasian Economic Union. Attempts to involve EEU executive bodies in disputes with Russian departments have not yielded significant results.

Conclusion

Since the mutual dependence of Russia and Belarus is a dynamic value, which will decrease in the future, any compromise on any issue, including those in the trade, military, political, oil and gas sectors will be temporary. On the other hand, the unpreparedness of the Russian and Belarusian governments to carry out reforms and their deep-seated belief that socio-economic problems will be resolved automatically basically predetermine the preservation of the status quo, which can be defined as a ‘mercantilist alliance.’

Due to the ‘mercantilist’ keynote in Russian-Belarusian relations, the Eurasian Economic Union will remain a weak alliance with a huge number of restrictions in the foreseeable future. Trade volumes will directly depend on oil prices and, accordingly, the stability of the Russian ruble, rather than institutional shifts.

Belarus will seek to maintain certain foreign policy independence, but the possibility of new repressions against opponents of the regime sets some limitations in this regard.