Russia's wielding of gas clout could damage image: analysts

23rd June 2010, Comments 0 comments

Russia's use of its energy clout against its unruly neighbour Belarus will have little impact in Europe but could further damage Moscow's reputation in the West, analysts said on Tuesday.

Russia cut gas supplies to Belarus by 60 percent Wednesday as a payment feud escalated, raising fears that European consumers could run short. Lithuania on Wednesday already reported a 30 percent reduction in supplies through Belarus.

Belarussian leader Alexander Lukashenko has dubbed the conflict a "gas war" and said Belarus would answer by turning off transit gas to European customers.

The dispute raises the spectre of the gas cuts in January 2009 when a bitter row led to Russia turning off the taps to Ukraine, in turn leaving many European countries short of gas in the dead of winter.

Analysts said the latest Russian cut-off is about a wider dispute as impoverished Belarus seeks to use the only weapon it has against its powerful neighbour -- the transit gas that runs through the country -- to push for a better deal in economic relations with Moscow.

The conflict is unlikely to have serious effects on European gas consumers since it is taking place in summer when demand is low, the countries affected have stored gas reserves and in any case Gazprom could divert gas to pipelines through Ukraine to Europe, analysts agreed.

But some said it would damage the image of state gas giant Gazprom and consequentially Russia as well.

"This is less about any real damage the conflict could cause in Europe and more about the harm that the conflict does to Gazprom's image, making it look like an unreliable supplier," Valery Nesterov of Troika Dialog told AFP.

"Russia will gain nothing in this war. Such methods of heavy-handed pressure, especially if Europe experiences gas problems, throw a shadow on the Russian authorities," said Yevgeny Volk of the Yeltsin Foundation.

Others disagreed, saying the squabble would do little damage.

"All the European customers will definitely view it as a domestic dispute between Belarus and Russia," said Chris Weafer, the chief strategist at the Uralsib investment bank.

"I don't think at least for now it is going to do any serious damage to Gazprom's revenue or to Russia in terms of its energy reliability."

Analysts linked the gas dispute to a wider struggle between the two countries.

"This dispute is not about gas or energy, it's simply the fact that the gas transit is the only leverage Minsk has against Moscow," Weafer said.

Once seen as a dependable ally by the Kremlin, Belarus has angered Moscow in recent months with attempts to build closer ties with Europe and a series of economic spats.

Longstanding efforts between the two countries to build closer economic ties were damaged in May when Minsk pulled out at the last minute from a key summit aimed at creating a joint customs bloc between Russia, Belarus and Kazakhstan, forcing Russia and Kazakhstan to launch the bloc alone.

Lukashenko asked "too high a price" for joining the bloc, Nikolai Petrov, an analyst with the Moscow Carnegie Centre said, by insisting that Belarus continue to pay a lower price for gas and be given discounts on Russian oil.

"The authorities are sick of this. (Lukashenko) is stalling an important integration project," Petrov said.

Belarus hopes that the European Union will intervene in the dispute amid fears of gas shortages and put pressure on Russia to agree to Minsk's terms, said Weafer.

"I think what it is really about is Belarus's efforts to negotiate a continuing subsidy from Russia."

While Ukraine was able to call on European support when Russia cut off gas in winter 2009, Lukashenko will ultimately back down and comply with Russia's demands since Belarus has no allies in Europe, Weafer predicted.

"He has always been very careful not to drive any significant wedge between himself and Moscow as he has no other friends."

"He is in a very weak position to negotiate. There will probably be some fairly short and intense negotiations and they will reach some deal."

© 2010 AFP

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