Russia arms its energy weapon, targets Belarus over gas prices

Russia finds itself once again in a row with one of its neighbors over gas prices — a constant theme since the early 2000s — triggering renewed fears that Moscow is again using energy as a weapon to put pressure on its customers.

Back in the spotlight is Belarus, which has already been confronted with the Russian energy weapon three times before in 2004, 2007 and 2010.

Since July 1, Russia has reduced crude oil supplies to Belarus by more than 40% — a direct consequence, Moscow says, of the row over gas prices.

And who’s to say that Russia won’t turn off the gas taps to Belarus — just as it did in 2004 and 2010 — to force Minsk to pay up?

This, in turn, would likely see some disruption to the transit of some 37 Bcm/year of gas via Belarus to Europe.

Below is a summary of previous occasions where price disputes have led Russia to use its energy weapon in the past.

2004: Belarus

On February 18, Russia halted all gas deliveries into Belarus, including gas intended for European markets accessed via Belarus’ pipeline network, following a price dispute, the first example of Russia using its clout to force a customer’s hand.

Supplies to Belarus were reduced early on February 18 before being suspended completely after Belarus began removing gas from transit lines.

Deliveries restarted on February 19, less than 24 hours after being halted, when Belarus agreed a short-term gas supply contract with independent trader Trans Nafta.

Disruption was felt in a number of European countries over the 24 hours, including Poland and Germany.

2006: Ukraine

Gazprom cut supplies to Ukraine on January 1 leading to widespread supply shortfalls across the EU after a long-standing pricing dispute between Moscow and Kiev.

The dispute came following the Orange Revolution that saw pro-western President Viktor Yushchenko elected to power.

By December 2005, Ukraine had refused to pay $230/1,000 cu m for Russian gas — a rise from $50/1,000 cu m — after a year of talks about gas pricing and transit.

Ukraine admitted to withholding supplies meant for onward transit to Europe, which led to disruption in gas deliveries to much of eastern and southeastern Europe and even further west in France, Germany, Italy and Austria.

Gazprom began to restore gas supplies to Ukraine on January 3 and an agreement was reached on January 4 that saw an intermediary company — RosUkrEnergo — mix Russian gas with gas from Central Asia and charge Ukraine $95/1,000 cu m.

2007: Belarus

Russian crude oil exports were halted on January 8, with the disruption lasting for three days, as a result of tit-for-tat export duty moves.

The cutoff led to disruption to supplies of Russian crude to refineries in Poland, Germany, Slovakia, the Czech Republic and Hungary.

The row over transit fees came just days after Belarus narrowly averted a threatened cutoff in Russian gas supplies by agreeing to a demand by Gazprom that Minsk pay double the previous year’s price for gas.

Belarus imposed a $45/mt transit tax on Russian crude passing through the country in response to a Russian decision to impose export duties of $180/mt on crude Belarus buys from Russia.

The dispute was resolved on January 12 when Belarus canceled the transit tax and Russia agreed to cut the export duty to $53/mt.

President Vladimir Putin at the time said Russia was effectively subsidizing Belarus’ economy to the tune of $5.8 billion in 2007 as a result of the compromise reached by the two countries to resolve the dispute.

2009: Ukraine

On January 1, Gazprom halted gas supplies to Ukraine because the two sides had failed to agree a supply agreement for 2009. Kiev was also struggling to pay for Russian gas supplied in the last few months of 2008.

The two sides pledged to allow Russian gas transit to Europe to continue, but on January 7 Russian gas flows through Ukraine to Europe were halted.

Gazprom said Ukraine had fully shut down all export pipelines to Europe, while Ukraine said it was Russia that had halted supplies to the Ukraine border for transit to Europe.

The result was a total suspension of supplies to a majority of EU countries, forcing them to adopt emergency measures to restrict consumption or seek alternative energy sources.

Moscow and Kiev resolved the dispute on January 18 with the signing by then Ukraine Prime Minister Yulia Tymoshenko of the now controversial 10-year gas deal with Russia.

Gazprom resumed supplies to Ukraine on January 20 and transit returned to normal by January 22.

2010: Belarus

On June 21, Moscow delivered on its threat to reduce supplies to Belarus because of $200 million in outstanding debt.

Gazprom cut gas supplies to Belarus by 15% or 7 million cu m/d from the normal level of 45 million cu m/d and then cut it further to 30% of normal supplies on June 22.

The biggest knock-on effect of the cutoff was on Lithuania, which saw its supplies reduced by as much as 40%. Poland also suffered limited disruption.

Gazprom restored full gas supplies to Belarus and Europe on June 24 after Minsk began paying off its debts.

2014: Ukraine

Russia halted supplies to Ukraine on June 16 after Kiev missed a deadline to pay off its gas debts to Gazprom. The Russian firm also said it would charge higher prices and insist on pre-payment by Ukraine for gas from that point onwards.

According to Gazprom, transit through Ukraine to eastern Europe was not disrupted during the cut-off, though a number of countries including Poland and Slovakia reported drops in their imports at various times throughout the summer and into September.

Turkey also reported a drop in volumes from Russia via Ukraine during November.

Ukraine itself countered the loss of Russian gas imports by starting to import gas from Europe and reducing domestic consumption.

After trilateral talks also involving the European Commission, Gazprom resumed supplies to Ukraine on December 9 after Ukraine pre-paid for new volumes.

2015-16: Turkey

On November 24, Turkey shot down a Russian fighter jet near the Turkish-Syrian border.

Within one day, Russia said it would reconsider a number of strategic energy projects between the two countries, including the planned TurkStream gas pipeline.

By early December, intergovernmental talks on TurkStream between Russia and Turkey were canceled and the project remains suspended.

On February 24 this year, a number of private Turkish gas importers complained that Gazprom had arbitrarily reduced the volume of gas it was supplying pending a new pricing agreement.

One — Enerco Enerji — said Gazprom had demanded an increase in the price that seven importers were paying for the 10 Bcm/year of gas they import collectively, threatening to reduce the volumes supplied if the seven did not agree.

In April, Gazprom Export reached agreement on price with six importers — named as Avrasya Gaz, Akfel Gas, Bati Hatti, Enerco Enerji, Kibar Enerji and Shell Enerji — for the 7.5 Bcm/year they import.

2016: Belarus

On July 1, Russia said it would reduce the volume of crude oil it was sending to Belarus by 40% to 2.25 million mt for the third quarter compared with Q2.

Moscow said the decision was taken because of the ongoing row over gas prices and debts.

Russia’s current price for Belarus stands at $132/1,000 cu m, but Belarus believes that $73/1,000 cu m would be a fair price under current market conditions.

Russia disagrees, pointing to formulas written into a governmental agreement, and has also said that Belarus still owes some $200 million in unpaid bills for gas supplies so far in 2016.

Russian Prime Minister Dmitry Medvedev on Tuesday warned Belarus that the standoff between the two countries over gas prices and debts could lead to a “deadlock” that would be difficult to resolve.

He even cited the “experience of previous years” in his warning, saying he did not want the situation to deteriorate past a point of no return.

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