Научно-исследовательский центр Мизеса

The gas standoff between Moscow and Minsk is apparent, but it is still unclear just how far each of the sides is willing to go and whether each of them has a relief strategy. This is obviously not a case of purely economic confrontation.
Russia tried to do all it could to deeply integrate with, almost incorporate, Belarus within the proposed "Union State" model. Russia offered quite a few "carrots:" extremely low prices of natural gas, uniquely favorable terms of crude oil delivery, a green light for Belarusian imports, relaxed loan terms, etc. The Kremlin has been turning a blind eye to the fact that Belarus is giving both direct and indirect subsidies to domestic manufacturers, thus giving them an unfair edge on their Russian competitors. The latter, receiving no aid from the government, cannot lower their prices.
Political "carrots" were no less important and valuable for Minsk. However, the Kremlin finally realized that the Belarusian leadership, while getting unheard-of financial, economic and other support, had no intention to give up their economic, let alone political, control. The partners hit an impasse. The conflict will likely escalate, because, paradoxical as it may seem, both sides benefit from it. Putin and the Kremlin could be given reasons to resort to "heavy artillery," such as raising prices of natural gas and oil to the level of the world market, retaliatory protective measures for exporters, and cessation of support on the world arena and in the media.
It is these steps that might lead to the emergence of a new, pro-Russian force in Belarus or bring about a change in Alyaksandr Lukashenka's stance. At least, that is what the Kremlin expects. However, it must beware not to cross the line, because there is a risk of economic and social, and later, political, instability. The desire to acquire Beltranshaz and take control of the oil-refining industry could turn out to be a Pyrrhic victory when the majority of the Belarusian population raise the slogan, "Russia, get out!"
The Belarusian leader derives his benefits from the standoff, too. The history of his relations with the Kremlin would convince even a person unversed in politics that Lukashenka would neither surrender a drop of his country's independence, sell Beltranshaz, adopt the Russian ruble as Belarus' currency, nor agree to forming any supranational governing bodies.
From the point of view of Minsk and its interests, the operation of involving Russia in its own schemes went down brilliantly. Minsk managed to use Russian money and other resources for drastically improving the nation's self-awareness, forming a powerful bureaucratic caste to control the economy, and neutralizing political rivals. That process has continued for at least a decade. An intoxicating haze of pro-integration rhetoric and manipulation of Russian politicians and officials who make money on commercial schemes have helped insure that the Kremlin remained generous.
But now Minsk feels that Moscow is seriously demanding repayment. A conflict is needed to escape from the uncomfortable situation. Moscow's decision to raise gas prices and revise the terms of crude oil delivery are an excellent occasion for putting all the blame on Russia. A pretext has been found - the price rise would be a breach of the Common Economic Space Agreement, meaning that it has effectively collapsed.
Minsk could have used the change in the procedure of VAT payment in early 2005 as a pretext for withdrawal, but the Belarusian leadership needed to use unprecedented oil and gas supply preferences and an open Russian market for two more years. Minsk got that with political support during the presidential election to boot, while naturally retaining tough protective measures against Russian products on its home market.
Whatever Russia's price policy toward Belarus, any changes would be officially interpreted in Minsk as betrayal of the integration ideals. Minsk would get the opportunity to restore customs terminals on the border, blame everything on Moscow and begin privatization, that is, transformation of political power into economic control, without Moscow's participation. That process is most likely to take the form of distribution of assets among politically loyal individuals, not an open auction.
Lukashenka is in need of a graceful strategy for breaking away from the Soviet-style planned economy, because the resources that have helped sustain "the Belarusian economic miracle" are about to be exhausted. On the other hand, he needs to look for new resources and supporters. It is the Belarusian bureaucracy and big business, both private and state-controlled, that the Belarusian leader would most probably share economic control with. He would lose much more in compromising with Russia or the West to retain political control.
That phase of intense confrontation with Russia might be avoided, though. Lukashenka's lobby in Moscow are not about to give up their revenue that easily. In addition, considering the latent political and psychological conflict, the sides might abandon factitious notions of "brotherly integration" to start thinking about a genuine partnership based on a market economy.