The Russian economy is in turbulence, but it is still able to crush Belarus. However, it is not only about money, Moscow is also pursuing political goals.
Over the last weekend, the Russian ruble has seriously weakened. One had to pay 68 rubles for one US dollar at Moscow exchange offices. Apparently, this is a consequence of the US announcing new sanctions that will primarily affect Russian finances and state bonds. It is also the indirect effect of the depreciation of the Turkish lira. However, the troubles of the financial sector and the prospect of rising inflation do not prevent Moscow from exerting financial pressure on Belarus. On Friday, Reuters reported that Russia intended to cut supplies of duty free oil and gas. According to the agency, Moscow was about to block paying the last tranche of the Eurasian Stabilization and Development Fund loan and suspend transferring $1 bn of the Russian loan to Minsk. Moreover, they were also going to freeze duty payments for Russian crude oil to the Belarusian budget. In 2019, Russia may not offer an expected new loan to Belarus, Reuters stressed.
The condition of Belarusian finances depends on two factors: revenues from the re-export of Russian oil and oil products and a stable inflow of foreign loans along with efficient debt juggling. To save the situation in 2016, Belarus took $2 bn loan from the Eurasian Stabilization and Development Fund (EFSR). Apart from Russia, this Moscow-controlled institution comprises Belarus, Kazakhstan, Armenia, Tajikistan and Kirgistan. Its tranches that have been repaid over the two past years, made the stabilization of currency reserves possible. The reserves have been expected to grow from $4 bn to $7 bn this year. Except for credit injections, it is the fuel market that provided a significant contribution to the foreign currency reserves of Belarus.
Two years ago, Belarus had trouble paying off its credits, such as servicing debt in the International Monetary Fund. The situation has improved, but at the cost of total dependence on Russia. Last year, Russia granted more loans to Alyaksandr Lukashenka. For example, just after the Russian-Belarusian military game Zapad-2017, Minsk got $700 mln to pay off amounts owed to Moscow. There is a burden of the debt exceeding 40% of its GDP is on Belarus. Without regular tranches from Russia (and its institutions), the financial situation will deteriorate very soon. During his visit to Homselmash plant, Alyaksandr Lukashenka slammed Russian companies that are unfairly competing with Belarusians:
“Russia behaves like a barbarian towards Belarus, but we are not their vassals,” the Belarusian president said on August, 10.
On the same day, Reuters published its article about Russia’s measures towards Belarus. In response, the Russian Ministry of Finance issued quite a bizarre statement that Moscow would not stop paying out loans for the construction of a nuclear power plant to Belarus. But it did not contain not a word about the main cause of the conflict, I.e. Belarus“ re-export of Russian oil. And it seems to be is a clear threat to the Belarusian leader.
In January-May 2018, Belarus has received 18 mln tons of Russian oil. According to Russian-Belarusian agreements, Minsk has the right to export 6 mln tons abroad. The conditions of oil trade are so favourable for Belarus that the raw material goes from Russia duty-free. And instead of the Federation’s budget, the Russian export duty goes to Alyaksandr Lukashenka‘s cash office. In total, $2.5 bn, or even 5% of Belarusian GDP. In practice, this is a kind of Moscow subsidizing and buying Belarusian authorities’ loyalty. But the authorities began to trespass. According to the Russian oilers, the Belarusian side re-exports Russian oil (as well as liquid gas) to the West via the Baltic countries and Ukraine with the help of shady companies. Since the beginning of the year, the Belarusian re-export has tripled and according to the Russians, it has exceeded the agreed limits.
Reuters’ information about the suspension of loan disbursements and the possible blockade of oil supplies may be just a means of pressure on Minsk. It certainly caused panic, because cutting off the two most important sources of income would put Belarus in a state of bankruptcy. Besides, the Russians have already used economic blackmail against Minsk. They withheld the payment of loans when Belarus was lingering with paying for gas. This time, however, it is not just about money. Russia has financial problems, but they will always have funds to maintain such an important ally as Belarus. But the situation changes if the ally start flirting with the West and tries to blackmail Moscow with allegedly improving relations with Europe. Then choking off the source of cheap oil and Russian loans is purely political.