RUSSIA:Relations between Russia and Belarus continue to deteriorate after Belarus slapped new export levies on crude oil transiting the country to Western Europe.
Moscow has attacked the charge, warning it will further damage the strained relations with what was until recently its closest ally from the former Soviet Union. Although a customs union is supposed to exist between the two countries, Belarus will now impose a $35 per tonne tax on all oil passing through its pipelines.
The move seems likely to end any remaining expectations of the two countries integrating in a new unified state, after President Alexander Lukashenko complained of recent "unfriendly steps" from Moscow.
The dispute indicates that the Lukashenko regime has fallen out of favour with Russia's President Putin, Stephen O'Sullivan, chief strategist with Deutsche UFG in Moscow, suggested last night.
"I'm not sure I'd be poking Russia in the eye with a sharp stick as is happening at the moment," he said, commenting on the critical rhetoric from Minsk at New Year Russian price hikes and the latest retaliation.
But with spare capacity in other pipelines bypassing Belarus, he believes there is no immediate threat to German oil supplies from Russia, although Polish refineries will be badly exposed if all exports through Belarus are cut off. However, it will certainly reduce the number of options for oil imports, he warns.
Others suggest that the dispute could lead to pressure from both East and West on Lukashenko's regime, which has been heavily criticised in Western Europe for the lack of democracy and human rights violations and dubbed the last dictatorship in Europe.
"The reality for Belarus is that its only lifeline is Russia, because they haven't pursued other options for 16 years," said Chris Weafer, chief economist with AlfaBank in Moscow.
"A lot of Belorussians must feel that they're not going to get out of this cul de sac they're in under the leadership of Lukashenko. I think we could be looking at the start of process leading to political change in Belarus.
There will be support for opposition groups from both Russia and the West," he predicted last night.
Russia's economic and trade ministry has complained that the oil charges are a breach of bilateral trade and economic agreements. The transit of all goods and services across the two countries should be duty-free, it says.
Just before the new year, Belarus reluctantly accepted a major hike in gas prices, which will gradually bring prices for Russian exports up to Western levels.
It will also lose out on the €3.3 billion it earned from buying Russian crude duty-free before reselling processed products on for export - crucial to the country's economic stability.
Russia has also raised prices on gas exports to other former Soviet republics like Ukraine, Georgia and Moldova, despite strong protests against the moves.