
The 2004 Russia–Belarus energy dispute was a commercial and diplomatic dispute between
Russia
Russia (, , ), or the Russian Federation, is a transcontinental country spanning Eastern Europe and Northern Asia. It is the largest country in the world, with its internationally recognised territory covering , and encompassing one-eigh ...
and
Belarus
Belarus,, , ; alternatively and formerly known as Byelorussia (from Russian ). officially the Republic of Belarus,; rus, Республика Беларусь, Respublika Belarus. is a landlocked country in Eastern Europe. It is bordered by ...
that escalated in January 2004.
Close relations between the two countries and
willingness for political integration had made it possible for Belarus to purchase gas from Russia at heavily discounted prices. In the late 1990s,
Russian foreign policy
The foreign relations of the Russian Federation is the policy arm of the government of Russia which guides its interactions with other nations, their citizens, and foreign organizations. This article covers the foreign policy of the Russian Fed ...
shifted away from
geopolitics and became more pragmatic and economical, especially after the inauguration of
President
President most commonly refers to:
*President (corporate title)
* President (education), a leader of a college or university
*President (government title)
President may also refer to:
Automobiles
* Nissan President, a 1966–2010 Japanese f ...
Vladimir Putin
Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has served continuously as president or prime minister since 1999: as prime m ...
. As a result,
Gazprom
PJSC Gazprom ( rus, Газпром, , ɡɐzˈprom) is a Russian majority state-owned multinational energy corporation headquartered in the Lakhta Center in Saint Petersburg. As of 2019, with sales over $120 billion, it was ranked as the largest ...
moved to ensure the reliability of gas transits to Europe by attempting to establish control over the Belarusian transit network. Belarus initially agreed to sell 50% of the network, but after disagreements over price, Belarus severed the contract. Gazprom announced price rises, and after Belarus refused, Gazprom ceased to import gas to Belarus on 1 January 2004. Belarus compensated by siphoning from gas meant for transit to Europe, which on 18 February resulted in Gazprom completely shutting off the supply to Belarus. Other companies supplied Belarus on short-term contracts until June 2004, when a new contract with Gazprom was finally signed.
Background
Economic background
Belarus is an important transit route of Russian gas to Europe, with around 20–25% of
Gazprom's European exports passing through Belarusian territory. Two major
pipelines run through the country:
Northern Lights and
Yamal-Europe. The former is used to transit Russian gas to Europe as well as for Belarusian domestic use; the latter transits gas solely for export to Europe. The Belarusian economy is heavily gas dependent—gas accounted for 59.9% of the country's energy balance in 2003.
In addition, most of the electricity in the country is generated from gas. In 2003, Belarusian gas consumption was . Domestic gas production amounted to only . The rest was imported from Russia, chiefly from
Gazprom
PJSC Gazprom ( rus, Газпром, , ɡɐzˈprom) is a Russian majority state-owned multinational energy corporation headquartered in the Lakhta Center in Saint Petersburg. As of 2019, with sales over $120 billion, it was ranked as the largest ...
.
For political reasons, Belarus was able to purchase gas from Russia for Russian domestic prices, which were only a quarter of the international market price.
In January, 2003, Belarus paid $34.37 per 1,000 cubic meters for its imports.
Political background
After the
dissolution of the Soviet Union in 1991, Russia and Belarus enjoyed relatively good relations. Both countries strove for political integration, Russia mostly for geopolitical and Belarus chiefly for economic reasons. Russia also saw political integration as a means for eventually gaining full control over the Belarusian transit routes—thus ensuring the reliability of transit. The Belarusian leadership chose to build close relations with Russia, with the ultimate aim of formal unification.
Gas price agreements between the two countries were settled politically, with the commercial side being given less attention.
The relations between the two countries began to change as a result of the
1998 Russian financial crisis
The Russian financial crisis (also called the ruble crisis or the Russian flu) began in Russia on 17 August 1998. It resulted in the Russian government and the Russian Central Bank devaluing the ruble and defaulting on its debt. The crisis had s ...
. Russia no longer saw itself strong enough to sustain its aspirations of
superpower
A superpower is a state with a dominant position characterized by its extensive ability to exert influence or project power on a global scale. This is done through the combined means of economic, military, technological, political and cultural ...
status. Consequently, Russia began to attach more significance to
geo-economics
Geoeconomics (sometimes geo-economics) is the study of the spatial, temporal, and political aspects of economies and resources. Although there is no widely accepted singular definition, the distinction of geoeconomics separately from geopolitics ...
rather than
geo-politics
Geopolitics (from Greek γῆ ''gê'' "earth, land" and πολιτική ''politikḗ'' "politics") is the study of the effects of Earth's geography (human and physical) on politics and international relations. While geopolitics usually refers ...
in its relations with
CIS neighbours. This development accelerated during
Vladimir Putin
Vladimir Vladimirovich Putin; (born 7 October 1952) is a Russian politician and former intelligence officer who holds the office of president of Russia. Putin has served continuously as president or prime minister since 1999: as prime m ...
's presidency, when Russian foreign policy became more pragmatic and economised.
Because of domestic payment collection problems, Belarus accumulated
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The d ...
s for its gas imports. When disagreements over the political integration increased, Gazprom realized that the Belarusian debts would in future undermine the reliability of Belarusian transit routes. Consequently, Gazprom sought to establish a
joint venture
A joint venture (JV) is a business entity created by two or more parties, generally characterized by shared ownership, shared returns and risks, and shared governance. Companies typically pursue joint ventures for one of four reasons: to acce ...
to own and operate the Belarusian transit network, to ensure uninterrupted transit of gas to
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a subcontinent of Eurasia and it is located enti ...
.
2004 dispute
In an intergovernmental agreement signed in April 2002, Belarus promised to sell 50% of
Beltransgaz, the company owning the Belarusian transit network, to Gazprom. The agreement also stipulated that gas prices to Belarus would be the same as Russian domestic prices for the next five years.
The contract did not specify the value of Beltransgaz. Belarus estimated it as $5–6 billion, while Gazprom proposed a price of $500–600 million. The
Belarusian President Alexander Lukashenko
Alexander Grigoryevich Lukashenko (as transliterated from Russian language, Russian; also transliterated from Belarusian language, Belarusian as Alyaksand(a)r Ryhoravich Lukashenka;, ; rus, Александр Григорьевич Лука� ...
later suggested $2.5 billion as a lower limit, but this was rejected by Gazprom. As the political agreements that had given Belarus the right to purchase gas at Russian domestic prices were now broken, Gazprom, backed by the Russian government, now moved to abolish the price discounts.
Gazprom stated that if an agreement was not signed until 2004, it would increase gas prices from $30/m to $50 per 1,000 cubic meters. Belarus refused, and on 1 January 2004, Gazprom stopped shipping gas via the
Northern lights pipeline.
Belarus was able to compensate by purchasing gas from non-Gazprom exporters such as
Itera
ARETI International Group of Companies is a private energy company headquartered in Geneva, Switzerland. ARETI was created by Igor Makarov in 2015 as a result of rebranding of Itera International Group of Companies, which was started in 1992. T ...
and
TransNafta on short-term contracts. This continued until 18 February, when the companies refused to sign further short-term supply contracts. Since Belarus was dependent on gas for most of its heat and electricity production, the situation in the country during cold winter started to become critical. After deliveries stopped, Belarus started to siphon gas meant for transit to Europe from the
Yamal-Europe pipeline, without Gazprom's approval. As a result, at 18:00
Moscow time
Moscow Time (MSK, russian: моско́вское вре́мя) is the time zone for the city of Moscow, Russia, and most of western Russia, including Saint Petersburg. It is the second-westernmost of the eleven time zones of Russia. It has b ...
on 18 February, Gazprom completely cut off supplies to the Belarusian network.
Germany
Germany, officially the Federal Republic of Germany (FRG),, is a country in Central Europe. It is the most populous member state of the European Union. Germany lies between the Baltic and North Sea to the north and the Alps to the sou ...
experienced only minor shortfalls in deliveries because of extensive storages of gas and due to most of imports coming through
Ukraine
Ukraine ( uk, Україна, Ukraïna, ) is a country in Eastern Europe. It is the second-largest European country after Russia, which it borders to the east and northeast. Ukraine covers approximately . Prior to the ongoing Russian invas ...
; however,
Poland
Poland, officially the Republic of Poland, , is a country in Central Europe. Poland is divided into Voivodeships of Poland, sixteen voivodeships and is the fifth most populous member state of the European Union (EU), with over 38 mill ...
reported more severe disruption. Supplies to
Kaliningrad Oblast
Kaliningrad Oblast (russian: Калинингра́дская о́бласть, translit=Kaliningradskaya oblast') is the westernmost federal subject of Russia. It is a semi-exclave situated on the Baltic Sea. The largest city and admini ...
were also affected. Belarus managed to sign a new short-term contract with
TransNafta at the price of $46.68 per 1,000 cubic meters, which resulted in Gazprom resuming supplies before midnight of 19 February. Similar contracts supplied Belarus until June, when Belarus finally agreed a new contract with Gazprom for delivering gas for the rest of 2004 with the price of $46.68 per 1,000 cubic meters.
In mid-2004, political relations between Belarus and Russia started to improve, and a new agreement between Belarus and Gazprom was signed. The two sides now agreed to appoint an outside consultancy firm to define an appropriate value for the sale of
Beltransgaz.
Implications
Although the 2004 dispute further strengthened the perception that Belarus and its economy were heavily dependent on Russian gas and Gazprom, it also became clear that Belarus also possessed some important cards. In 2007, after a
later dispute, Gazprom agreed to pay $2.5 billion for Beltransgaz—several times more than it was prepared to pay in 2004.
The 2004 dispute also raised concerns about reliability of Gazprom's supplies to Europe, and highlighted the fact that Gazprom had not solved the issue of reliable transit.
References
{{DEFAULTSORT:2004 Russia-Belarus Gas Dispute
Energy in Belarus
Russia-Belarus Gas Dispute, 2004
Russia-Belarus Gas Dispute, 2004
Belarus–Russia relations
Russia-Belarus Gas Dispute, 2004
Natural resource conflicts
Price disputes involving Gazprom