LUKASHENKO GIVES RUSSIA BLACK EYE OVER BLACK GOLD

1. (C) On January 3, Belarusian PM Sergey Sidorskiy announced
duties of USD 45/ton on Russian crude oil shipped via
pipeline through Belarus effective from January 1. If crude
shipments were to continue at their 2006 volume, Transneft
would pay the GOB USD 3.1 billion in duties. Lukashenko
explicitly tied the duty to Russia's imposition of export
duties on oil sold to Belarus. The GOB still hopes to settle
differences over oil, because it stands to lose economically
if a trade war with Russia continues. Politically,
Belarusians think that Lukashenko's approach will surely
alienate the Russian elite even further. End summary.

Transneft, Can You Spare USD 3 Billion?


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2. (U) On January 3, PM Sergey Sidorskiy told press the GOB
had set USD 45/ton as the duty on Russian crude transiting
Belarus. On December 31, the Belarusian Council of Ministers
passed a resolution imposing a duty effective January 1 at a
rate to be determined later. On January 4, the state oil
company, Belneftekhim, announced it had informed Transneft of
the USD 45 duty.



3. (SBU) Speaking at a January 3 conference, Lukashenko
linked the decision to Russia's imposition of an export duty
on oil shipped to Belarus (ref A). He stated Russia's move
had worsened conditions for Belarusian oil refineries and
necessitated action from the GOB to protect its budget and
jobs. On January 4, MFA Spokesman Andrey Popov affirmed the
duty was not intended to disrupt oil shipments through
Belarus.



4. (SBU) Russia exports approximately 70 million tons of oil
annually through Belarus (another 20 million tons are sold to
Belarus). If Russia were to continue exporting the same
rate, Belarusian customs would collect over USD 3 billion in
duties from Transneft. Not surprisingly, this is the same
amount the GOR would stand to collect due to its new export
duty on oil sales to Belarus. Naturally, Russian companies
would seek alternate routes, but Olga Tochitskaya, Deputy
Director at the Institute for Privatization and Management,
said in the short term Russian options would be limited.

Likely Russian Countermeasures: Negotiation or a Trade War


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5. (C) PM Sidorskiy did not give reporters details of his
three-hour January meeting with Russian PM Mikhail Fradkov,
but he did claim both sides agreed to work diligently to
resolve their differences over oil. Belarus was certainly
pleased with the status quo ante, and Lukashenko declared
January 3 that even a 50-50 split of the export duty would
suit Belarus. Mises Research Center Yaroslav Romanchuk told
Acting Pol/E Chief such an outcome was unlikely, but Belarus
might realistically hope to reduce the duty to 70 percent
(from its current rate of 85 percent of the usual export
duty).



6. (C) Barring successful negotiations over oil, Romanchuk,
Tochitskaya and economist Mikhail Zalesskiy said Russia would
likely limit Belarusian firms' access to the Russian market.
All three agreed such a move would threaten Belarus' economy.
Zalesskiy added that Russia would discourage its oil
companies from using the Naftan and Mozyr oil refineries. He
believed excess capacity in Russian refineries might be able
to take up the slack. He did note Russian firms themselves
could lose out from pressure on Belarusian refineries given
Slavneft's stake in the Mozyr refinery and Lukoil's network
of gas stations in Belarus.

If Push Comes to Shove ... Lukashenko Lists Other Threats


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7. (C) While until fairly late in the gas negotiations Minsk
had limited its threats (ref B), on December 29 Lukashenko

MINSK 00000013 002 OF 002


mentioned charging Russia for its military bases in Belarus
and even charging Russian planes to fly over Belarusian
airspace. Lukashenko again mentioned military bases January


3. Tatyana Manenok of the independent weekly "Belarusy i
rynok" believes a threat to the bases would likely cause
Russian Deputy Prime Minister and Defense Minister Sergey
Ivanov to step in to defuse a crisis.



8. (C) Our interlocutors noted Lukashenko was not giving the
impression of someone ready to back down. Zalesskiy said it
looks like Lukashenko is ready for a fight. Romanchuk
characterized Belarus' decision to impose a duty as hasty,
and said Lukashenko was showing his desperation. Tochitskaya
said the decision may have been purely emotional. Director
of the Wider Europe NGO Vyacheslav Pozdnyak told Acting Pol/E
Chief Lukashenko appears to be under great psychological
pressure, and will respond with pressure of his own hoping
Moscow will back down.

Comment: Russia Has to Dance with the One They Brought?


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9. (C) Lukashenko likely believes threats to cut off gas
supplies to Europe helped him win significant concessions in
gas negotiations (ref B). Thus, it does not seem illogical
to us that he would attempt to win further concessions
through a new round of threats, this time to Russia's oil
interests. Perhaps Lukashenko is purposely cultivating his
image as a rabid provincial in hopes that Moscow, like
independent analysts in Minsk, believe the Belarusian
president is irrational enough to escalate the row beyond the
realm of economics if the Kremlin does not compromise over
oil duties.



10. (C) Tochitskaya said her Russian contacts told her
Lukashenko would soon become public enemy number one in
Moscow if energy relations were not resolved shortly.
Romanchuk added Lukashenko had definitely shown himself as
the wrong person to protect Russia's interests in Belarus.
However, Moscow remains without a clear alternative to the
current dictator (refs C and D). If the conflict continues,
Moscow's prospects of a better option do not look any better
this spring. As Aleksandr Milinkevich noted in a January 4
interview, Lukashenko's popularity has risen after the gas
dispute. Lukashenko is certainly hoping Putin will decide
the best course is to pass off the Belarus problem to
Russia's next president.

Moore