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Oil and Gas

Belarus, Russia solve milk row, other problems loom

* End to “milk war” could mask major Russia-Belarus difference

* Two sides pursuing different agendas

* Differences over gas remain troublesome

MINSK, June 20 (Reuters) - The end to a “milk war” bedevilling relations between Belarus and Russia could prove a mere truce masking strategic differences over trade, recurring gas disputes and Belarus’s drive to move closer to the West.

Analysts say the two ex-Soviet states, linked by a nebulous “union treaty” dating from the 1990s, are pursuing conflicting agendas -- with Russia trying to extract as much as it can from its smaller neighbour and objecting to President Alexander Lukashenko’s rapprochement with the European Union.

Russia on Wednesday ended its ban on Belarussian dairy products, prompting Belarus to suspend new customs controls within 24 hours of their imposition. The row was the latest in a long series between neighbours once committed to restoring a Soviet-era alliance between two Slav nations.

But at the same time, Russia’s gas export monopoly Gazprom demanded Belarus pays $230 million in arrears for gas supplies so far this year.

“This peace is clearly no more than a truce,” said independent political analyst Alexander Klaskovsky.

“We can already hear the drums of a new gas war. Constant conflict is the basis of relations between two allies who, despite a formal alliance, have diametrically opposed interests.”

Lukashenko, he said, would “gain new confidence and act more decisively after Moscow’s quick retreat”.

The Belarussian leader, long ostracised by the West over allegations that he mistreated opponents and ignored human rights concerns, has been seeking improved ties with the West since quarrelling ith Russia two years ago over energy prices.

BELARUSSIAN CONCESSIONS TO THE WEST

Belarus made several concessions, releasing the last detainees considered political prisoners in the West and holding an election deemed to be an improvement over previous contests.

That culminated in an invitation for Belarus to attend the European Union’s Eastern Partnership summit last month with former Communist countries -- an initiative viewed with suspicion in Moscow.

Russia froze a $500 million credit for Belarus and a top minister said Minsk was on the brink of insolvency. A furious Lukashenko stayed away from a security summit in Moscow.

Russia, in the meantime, said it would make its bid to join the World Trade Organisation a joint effort with Belarus and Kazakhstan -- its partners in a new customs union.

“I think Lukashenko won the milk war on points. But there is a deeper problem in that the Belarussian state is seriously strapped for cash. It is surviving from hand to mouth,” said Andrew Wilson of the European Council on Foreign Relations.

“Both sides have got incompatible positions. Russia wants to scale down its subsidies or get more in return while Lukashenko clearly wants to survive as an independent player. So he will carry on manoeuvring between East and West.”

The issue of gas arrears and pricing remains the thorniest, with 20 percent of Russian shipments of gas to the West still passing through Belaurs. Minsk says Russia’s payment demand violated a gentlemen’s agreement.

“In talks between the two presidents, an oral understanding was reached calling for payment over the course of the year at a rate calculated to be the average price,” said Natalya Petkevich, Lukashenko’s first deputy chief of staff.

Lukashenko, clearly taking no chances, asked top officials in the past week to draw up a list of actions which might be taken by Russia “liable to cause economic damage to Belarus”.

“This conflict demonstrated that our partners are not always predictable and we must be ready for anything,” said Petkevich. “Given that Russia is our main trading partner, we must take account of all possible consequences.”

Russian actions may underscore the notion that Moscow may have lost patience with Lukashenko once and for all and that the notion of the “union state” may be all but buried.

“These contradictions are all about strategic issues,” said Kirill Koktysh of the Association of Political Experts and Consultants in Moscow.

“The main problem is that Russia has at last concluded that it cannot come to any agreement with Lukashenko.” (Additional reporting and writing by Ron Popeski in Kiev; Editing by Richard Balmforth)

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