If you ever needed more proof that Russian state-controlled natural gas monopoly is a political weapon of Putin, look no further. I will explain why in a second. For now, read the following article

March 30, 2006 — Russia’s Gazprom said today it would raise natural gas prices for Belarus to European levels by 2007.

Gazprom head Aleksei Miller told Belarusian Energy Minister Alyaksandr Ageyev about the planned change at a meeting in Moscow today.

Gazprom said Minsk would respond by the end of April.

Belarus, a close Russian ally, currently receives gas at a subsidized price of $47 per 1,000 cubic meters — far below prices paid by customers in Europe and Ukraine.

Under a contract signed in December, Gazprom agreed to sell Belarus 21 billion cubic meters in 2006.

Belarus is heavily dependent on gas imports.

Now, let’s review all that has happened in the last few months. In December and January, Gazprom raised the price of natural gas immediately for all of the countries that were previously receiving subsidies. The hardest hit were Ukraine and Moldova, two countries that have taken exceptionally pro-Western stances and have defied Moscow on many occassions. The gas crisis in Ukraine and the subsequent deal especially hurt President Yushchenko, who numerically took a beating at the polls on Sunday. The only country that did not receive a price increase at the time was, you guessed it, Belarus.

The ramifications of the crisis were not lost on deaf ears. Putin’s ally in Belarus, the dictator President Lukashenko, would have suffered a tremendous backlash should prices have been raised — maybe enough to cause a colored revolution. Belarus is highly dependent on these prices to keep its industries competitive at all. Since Lukashenko is such a heavy-handed dictator, repressing even the most basic human rights like free speech and assembly (all the while falsifying elections), his legitimacy rests completely on economic growth. And since most of Belarus’ economic growth is due to state injection of money, which is aided by such low natural gas prices, an increase just before the presidential elections two weeks ago would have been disastrous for Putin.

However, Lukashenko will have to deal with the price increase as soon as next year perhaps. Should the increase even slightly affect the economy, his popularity could plummet with people swelling the ranks of the opposition. Certainly Putin must know this, so it is interesting why Gazprom would decide to raise the prices at all.

I am going to hypothesize a few things. Putin has made it clear that Russia is to become an energy superpower with a good international reputation for being reliable. This means that Gazprom cannot be seen as a political weapon and its price increases (even though it’s obvious due to the different timings) must be applied evenly. Also, the company has undergone a share liberalization that has opened up the company to foreign investment of up to 50%-1 share. The investors are certainly cheering the price increases, and are pushing for it hard, as it means more money in their pockets. It had to happen eventually.

Lastly, there is great personal animosity between Putin and Lukashenko despite their strategic relationship, and this is what will lead us to the end result of the price increases. Gazprom obviously wants control over the gas pipeline in Belarus for itself, so the prospect of being left to sink or swim may force Lukashenko to give it up in order to continue receiving low gas prices. However, regardless of what happens in that case, opposition to Lukashenko will continue to grow stronger and he will face a crisis of being able to govern. This could mean that he would be forced to accept the union proposal that would make Belarus part of Russia. Lukashenko has done everything he can to fight this possibility, but if he has to give up the pipelines and cannot effectively govern, he may just have to cede control of the country to Putin.