Dispatch: Russian Energy as Political Leverage

2011/01/22

Analyst Eugene Chausovsky discusses Russia’s use of oil and natural gas as a political lever to extend its sphere of influence in Belarus and Kyrgyzstan.

Editor’s Note: Transcripts are generated using speech-recognition technology. Therefore, STRATFOR cannot guarantee their complete accuracy.

Russia announced today that it had agreed to remove all duties on oil product exports to Kyrgyzstan. On the same day, Russian Prime Minister Vladimir Putin said that Belarus would receive roughly $4 billion worth of duty-free oil from Russia in 2011. These agreements shed light on Russia’s use of energy as a political tool.

Russia, as the largest producer and exporter of natural gas and one of the largest of oil in the world, has long used energy to its geopolitical advantage. This can be seen in the beginning of 2006 and in 2009 when Russia cut off natural gas supplies to Ukraine to send a political message to Europe. Russia has also changed the price that it charges for natural gas that it sends to other countries based on how close politically Russia is with those countries. For example with pro-Western countries like the Baltic states, Russia will charge them market prices over $300 per thousand cubic meters for natural gas, whereas if it’s a state that’s closer to Russia like Armenia, Russia will charge at much lower prices such as just over a $100 per thousand cubic meters. That same concept applies to oil in the form of oil export duties and this explains the agreements that Russia has recently made with both Kyrgyzstan and Belarus.

For Kyrgyzstan, Russia has much closer political ties to the current government that just came into power this past year than it did to the previous one. And so Russia has awarded the political loyalty of this government with economic kickbacks whether it’s through direct financial assistance or now in the form of the removal of the oil export duties. Russia has made these agreements to make sure that it retains the political loyalty of Kyrgyzstan but also because it expects favors from Kyrgyzstan in return, such as gaining the rights to supply fuel to the U.S. Manas air base in the country.

For Belarus, Russia is currently in the process of negotiating new oil and customs duties with the government in Minsk. While the agreement is not yet completely settled, Russia has offered to remove all oil export duties for Belarus so long as Minsk joins into the common economic space with Russia along with Kazakhstan by 2012.

So Russia has effectively offered to trade free oil export duties in exchange for more economic, and by extension, political control over Belarus. These agreements also come at an interesting time as it coincides with the statement made by a Russian deputy finance minister who said that Russia is considering unifying all of its oil export duty charges and fees by April 2011. But this is likely just rhetoric, as Russia will continue to retain its ability to use energy as an influential political tool.

Read more: Dispatch: Russian Energy as Political Leverage | STRATFOR

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