Following the breakup of the Soviet Union, geography, economics and the preferences of its leadership contributed to the continuation of Belarus’ close relationship with Russia.
Under Lukashenko, Belarus entered into a close security alliance with Russia. It is integrated into Russia’s military system. Russia has troops on the Belarus-Poland border and long-term leases on air defense and other strategic facilities in Belarus, including the early warning radar at Baranovichi in the southwest.
Economics and politics
Belarus under Lukashenko sought economic and political integration with Russia. Its industry is deeply dependent on Russia for fuel and other supplies, and also—being non-competitive in Western markets—for export outlets. A role is also played by nostalgia for the Soviet Union and the idea of Slavic brotherhood: Lukashenko has advocated a Slavic Union of Russia, Belarus, and Ukraine.
Russia’s interest in further integration with Belarus is doubtful.
Russia-Belarus Union Treaty
During 1996-2000, Moscow and Minsk signed treaties providing for greater political, economic and social integration. Joint governmental, parliamentary, and judicial institutions were to be set up, and there was to be further policy coordination in customs, taxation, defense, and other fields.
When Putin became Russian president in May 2000, the movement toward union clearly stalled. Putin expressed irritation at Lukashenko’s demands and opposed confederal arrangements that gave Belarus veto powers. He proposed instead direct incorporation of Belarus’ six provinces into the Russian Federation—an idea that Lukashenko found unacceptable.
The most recent session of the Supreme Council of the Russia-Belarus State Union, attended by Lukashenko and Putin, took place March 2013. The highlights were an agreement to speed up formation of joint Russian-Belarus stock companies in return for a Russian loan of $2 billion to modernize Belarus industry.
Conflicts of interest
Conflicts of interest between the two governments are increasingly significant. The economic systems of Russia and Belarus are no longer compatible. Russia chafes at the economic burden of supporting Belarus, as shown in disputes over the supply of subsidized Russian gas to Belarus.
Belarus has deferred plans to privatize certain enterprises in order to halt further Russian penetration of its economy (Russian corporations such as the gas and oil giants Gazprom and Lukoil had been acquiring Belarusian enterprises).
There was a plan for Belarus to adopt the Russian ruble as its currency at the beginning of 2005, but Lukashenko postponed transitional measures and called the plan premature. He expressed concern that currency unification would undermine Belarus’ sovereignty. The Belarusian side demanded that Russia and Belarus jointly control circulation of the ruble and that Russia pay Belarus $2.1 billion as compensation for the costs of adopting the ruble. Neither demand was acceptable to Russia.
Disputes with Russia over natural gas
Disputes over the cost of Russian-supplied (and subsidized) gas to Belarus has resulted in high-stakes face-offs between the two states over the last decade. Belarus faced a Russian cutoff in 2007, but agreed at the last moment to a five-year contract with Gazprom providing for a doubling of its subsidized price of gas, coupled with the Russian gas monopoly’s purchase of 50% of the Beltrangaz Belarusian state-controlled gas pipeline network. Another part of their energy dispute is the cost of Russian oil through Ukrainian pipelines to western Europe. Belarus’ 2007 imposition of a tariff on crude oil from Russia resulted in a short-lived Russian cut-off of oil. Belarus quickly backed down and repealed the tariff.
Another episode in the “gas war” took place in 2010. An acrimonious standoff was resolved after Belarus took a loan from Azerbaijan and paid off a $192 million debt for gas imported from Russia, and Moscow paid off $228 million for gas transit fees.
Nuclear power plant under construction
Belarus has considered for decades replacing imported natural gas by constructing a nuclear power plant. Russia would be the source of both funding and provision of the power plant. Construction of the $10 billion project in Grodno Oblast, 32 miles from Vilnius, Lithuania, started in 2013. The station is due to be commissioned in 2018.
At the same time, Russia agreed in 2013 to continue to ship crude oil to Belarus duty free, with Belarus exporting refined oil products back to Russia.
Politics and economics
Other issues have added to their mutual irritation: Russia’s banning of Belarus dairy products in 2009, Belarus’ refusal to follow Russia’s lead in recognizing the independence of Abkhazia and South Ossetia, and a Russian media campaign against Lukashenko in mid-2010,
The Belarus National Bank devalued the Belarus currency in 2011 in response to mounting economic problems, triggered by government directed salary hikes unsupported by productivity, plus the increased costs of Russian energy and an over-valued Belarus ruble. Belarus had to turn to the Russian-dominated Eurasian Economic Union’s Emergency Fund for a $3 billion loan, to the Russian state-owned bank Sberbank for a $1 billion loan, and sold its remaining shares in Beltranzgas to Russian state-owned Gazprom for $2.5 billion.
Defense against further Russian economic penetration?
"Golden share" rule re-adopted in 2013
Belarus' parliament revived the "golden share" rule enabling state representatives in any firm that used to be state-run or partially ruled by the state to block decisions made by management. This rule, which had been in force from 1997-2008, is reportedly intended to provide the authority to selectively block, if necessary, Russian economic penetration of the Belarus economy.
Trade with Russia declines
Trade between Belarus and Russia declined by 30% in the first quarter of 2013 (compared to 2012), possibly due to Moscow's accession to the World Trade Organization and the entrance of new competitors to Belarus in the Russia market.