VZCZCXYZ0028
PP RUEHWEB

DE RUEHSK #1234/01 3351403
ZNY CCCCC ZZH (CCY ADX540FC3 MSI6578 425A)
P 011403Z DEC 06
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC PRIORITY 5383
INFO RUEHZL/EUROPEAN POQITICAL COLLECTIVE PRIORITY
RUEHBJ/AMEMBASSY BEIJING PRIORITY 0064
RUEHCV/AMEMBASSY CARACAS PRIORITY 0029
RUEHBS/USEU BRUSSELS PRIORITY
RUEHVEN/USMISSION USOSCE PRIORITY 1358
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK PRIORITY
RHMFISS/HQ USEUCOM VAIHINGEN GE PRIORITY

C O N F I D E N T I A L MINSK 001234 
 
SIPDIS 
 
C O R R E C T E D  C O P Y (TEXT) 
 
SIPDIS 
 
E.O. 12958: DECL: 12/01/2016 
TAGS: PREL PGOV ECON CH VE AJ IR BO
SUBJECT: LUKASHENKO'S NEW FOREIGN POLICY: A METHOD TO THE 
MADNESS 
 
REF: A. MINSK 1184 
     ¶B. MINSK 1220 
     ¶C. MINSK 1212 
     ¶D. MINSK 794 
     ¶E. MINSK 787 
     ¶F. MINSK 1188 
     ¶G. MINSK 1102 
 
Classified By: Ambassador Karen Stewart for reason 1.4 (d) 
 
Summary 
------- 
 
¶1.  (C) Belarus' rocky relationship with Russia has forced 
the isolated country to pursue a different course in its 
foreign policy.  The GOB has ratcheted up its efforts to 
strengthen ties with countries like Iran, Venezuela, 
Azerbaijan, and China over the past year.  Belarus is 
attempting to diversify its energy supplier3: deeper ties 
with energy-rich countries could help Belarus minimize the 
effects of looming economic problems with Russia in the 
medium to long term.  However, the regime's only salvation 
from economic troubles in the short term is Russia's 
continued political support and economic largesse.  End 
Summary. 
 
Five Possible Pillars of Belarus' New Foreign Policy 
--------------------------------------------- ------- 
 
¶2.  (C) On October 19, President Lukashenko announced that 
Belarus is developing a new foreign policy, but Lukashenko 
and his government have been vague on the details.  We have 
spoken to a number of prominent political and economic 
analysts, informed journalists, diplomats, and GOB officials 
on the possible underlying themes of Belarus' new foreign 
policy.  Most Belarusian analysts believe that Lukashenko is 
genuinely seeking to change the course of Belarus' foreigN 
policy.  The regime appears to have based its more aggressive 
approach on the following five pillars: greater economic 
independence from Russia, diversification of energy 
suppliers, new export markets and limited foreign investment, 
no economic sanctions from the West, and possibly the active 
formation of an anti-West block of nations. 
 
Greater Economic Independence From Russia 
----------------------------------------- 
 
¶3.  (C) In a rare moment of candor, MFA Counselor in the 
Americas Department Andrey Rzheusskiy told Pol/Econ Chief on 
November 9 that his government has grown weary of Russia's 
desire and ability to hinder Belarus' economic development. 
Referring to the possibility thAt Russia could raise gas 
prices for Belarus up to USD 140 per thousand cubic metersQ 
(tcm) if it refuses to sell at least half of the gas transit 
company Beltransgaz to Russia (ref A), Rzheusskiy noted that 
"a country's partners are never truly permanent, only 
national interests." 
 
¶4.  (C) Economists stress that Belarus is desperate to find 
alternative energy supplies and export markets because the 
Belarusian economy remains too susceptible to the whims of 
the Kremlin.  For example, Russia supplies Belarus with 98 
percent of its natural gas.  A gas price increase from USD 47 
tcm to USD 140 per tcm would force Belarus to increase its 
spending on gas from USD 980 million per year to USD 2.94 
billion per year, which represents over seven percent of 
Belarus' USD 40 billion economy.  Irina Tochitskaya from the 
Institute for Privatization and Management said during the 
annual GeRman-sponskred Minsk Forum that an increase in gas 
prices of up to USD 200 would reduce GDP growth by 14 percent 
over the next half decade (ref B). 
 
¶5.  (C) Russia also supplies 96 percent of Belarus' oil at 
extremely reduced prices.  Over 40 percent of Belarus' 
exports are refined oil and oil-based products.  If Russia 
were to minimize or eliminate oil subsidies to Belarus, GOB 
officials and economists alike tell us that Belarus' economy 
would immediately collapse.  Moreover, slightly less than 40 
percent of Belarus' exports are destined for Russian markets, 
and Moscow has recently enacted import restrictions on 
Belarusian sugar and candy.  Finally, economists Sergey 
Zhbanov and Yaroslav Romanchuk told Ambassador on November 17 
that within two to three years of Russia's entry to the World 
Trade Organization (WTO), Belarus will be cut off from cheap 
energy supplies and favorable terms of trade with its eastern 
neighbor (ref C). 
 
¶6.  (C) The apparent willingness of Russia to use its 
powerful economic levers to cause significant discomfort for 
Lukashenko has forced the president to intensify his efforts 
to weaken Belarus' dependence on Russian politics and the 
Russian economy.  Analyst Andrei Federov commented that 
Lukashenko's seemingly unmovable position on Beltransgaz 
negotiations -- instead of stepping back from Lukashenko's 
earlier asking price of USD 5 billion, he recently stated 
Beltransgaz is worth USD 10 to 12 billion -- demonstrates his 
resolve to engage in a game of chicken with Russia.  In a 
possible attempt to minimize tensions with Russia, Belarusian 
Foreign Minister Sergey Martynov noted during the November 28 
CIS Heads of State Summit in Minsk that Belarus is ready to 
establish a Beltransgaz-Gazprom joint enterprise by the end 
of the year (septel).  However, analyst Valeriy Karbalevich 
stressed that Lukashenko personally has little to gain and 
everything to lose by giving up control of Beltransgaz and 
thus predicted the 
 Belarusian leader would again default on assurances made to 
Putin.  Moreover, Rzheusskiy and analysts maintained that 
Russia is not intent on fomenting political instability in 
Belarus (ref D) -- if it was, Russia would focus on 
subsidized oil supplies to Belarus. 
 
Diversification of Energy Suppliers 
----------------------------------- 
 
¶7.  (C) Independent news reported on November 22 that 
Lukashenko again instructed his key aides to intensify 
efforts to secure energy deals with Iran, Venezuela, and 
Azerbaijan, as "next year promises to be catastrophically 
difficult for Belarus."  Rzheusskiy admitted that his 
government is ill prepared for a gas price increase to USD 
140 per tcm or more and will continue to press Russia to 
maintain "brotherly" prices for Belarus.  However, Rzheusskiy 
stressed that Belarus is simultaneously attempting to wean 
the Belarusian economy off of Russian subsidized energy 
supplies, claiming that Belarus' sovereignty is at stake. 
 
¶8.  (C) Lukashenko warmly received Venezuelan President 
Chavez in Minsk on July 24, and both leaders touted their 
agreement to explore the possibility for Belarusian companies 
to extract Venezuelan crude oil and gas at discount prices 
and sell it on the world market, including to the United 
States, at world market prices (ref E).  This scheme would 
provide Belarus the necessary additional revenues to purchase 
Russian oil or gas at higher prices.  The Belarusian 
president received Azerbaijani President Aliyev on October 
17, and Lukashenko expressed sincere hope that Belarus and 
Azerbaijan would reach a similar oil extraction deal or an 
agreement to build an oil pipeline between the two countries. 
 Lukashenko called on Iranian President Ahmadinejad in Tehran 
on November 5, and high on the Belarusian leader's agenda was 
the possibility to extract and sell Iranian oil and gas on 
the world market.  Most recently, Lukashenko met separately 
with his Ukrainian and Azerbaijani counterparts on the 
margins of the CIS Summit to discuss energy cooperation, 
apparently without the involvement of Russia. 
 
¶9.  (C) Several of Lukashenko's ministers and aides, 
including Prime Minister Sidorskiy, Security Council State 
Secretary Viktor Sheiman, National Bank President Peter 
 
SIPDIS 
Prokopovich, and State Control Committee Chair Zyanon Lomat 
have followed up with these counties to accelerate 
ngotiations, but thus far we have not seen any evidnce that 
Belarus' new partners have agreed to it terms.  Aliyev, for 
example, implied during hisOctober 17 press conference in 
Minsk that Belaruian companies would have to participate in 
a reguar tender to win crude oil extraction rights in 
zerbaijan.  Furthermore, economists note that the ransit 
costs of importing oil or gas from any ofthese countries 
could make this option prohibitiely expensive for Belarus. 
 
New Export Markets an Limited Foreign Investment 
--------------------------------------------- --- 
¶10.  (C) Lukashenkorepeatedly stressed during his annual 
remarks toBelarusian ambassadors assembled in Minsk in 
Augst that the number one priority of his emissaries i the 
upcoming years is to promote Belarusian goos and services in 
any and all countries.  SeniorGOBofficals ave 
inceasingly praised Belarus'promising trade relations with 
China, Venezuela,Iran, Vietnam, Cuba, Malaysia, South 
Africa, and Azerbaijan.  Although the latest statistics thus 
far reflect that Belarus' new partners represent only a 
fraction of Belarus' trade with Russia or even the EU, 
expanding Belarusian exports to and attracting foreign 
investment from these countries appear to be more realistic 
goals for Belarus than diversifying its energy suppliers. 
 
¶11.  (C) Key Belarusian exports remain refined oil and 
oil-based products, fertilizer, metals, heavy machinery and 
equipment, and military technology.  Our analytical and GOB 
contacts agree that except for oil-based products, Western 
markets are generally not interested in Belarus' lower 
quality goods.  However, the GOB is successfully promoting 
its relatively few competitive companies in developing 
markets and in those countries that share the regime's 
political orientation and views.  Economic analyst Leonid 
Zaiko pointed out that Belarus and Iran recently signed 
contracts worth USD 350 million and agreed to look for ways 
to reach USD 1 billion in bilateral trade.  Political analyst 
and journalist Aleksandr Alesin claimed that Venezuela's 
agreement to purchase USD 1 billion worth of military 
technology and equipment from Belarus is "very plausible" 
over a five to seven year period, as Belarus' 
military-industrial complex is advanced enough to suit the 
needs of developing countries. 
 
¶12.  (C) Belarus, to some extent, is also seeking to increase 
foreign investment from its new partners.  During 
Lukashenko's December 2005 trip to Beijing, he announced that 
China is ready to provide up to USD 1 billion in loans for 
specific economic projects in Belarus.  This year Belarus 
announced its efforts to attract Iranian and Chinese banks to 
open up branches in Belarus.  Zaiko added that Iran will 
likely accept the GOB's invitation to establish at least one 
bank in the country, as Iran is participating in Minsk's 
lucrative housing development. 
 
No Economic Sanctions from the West 
----------------------------------- 
 
¶13.  (C) Analysts ironically note that one of Lukashenko's 
most noteworthy achievements has been to keep the West, 
particularly the EU, from enacting costly economic sanctions 
against the regime.  When it appeared that the EU was set to 
take the final step to suspend trade preferences (GSP) for 
Belarus in October, Lukashenko dispatched his trusted Deputy 
Head of Presidential Administration Natalia Petkevich to key 
EU capitals to demonstrate Belarus' "progress" in 
implementing the ILO's recommendations for improving labor 
conditions in Belarus (ref F).  EU officials and diplomats 
tell us that the GOB delegation presented a poor case for 
postponing the decision on GSP suspension, but the GOB's 
appeals were well timed to support the position of those EU 
member states that opposed the measure for other political 
and economic reasons.  The EU could take up the issue again 
in March 2007. 
 
¶14.  (C) According to most political and economic analysts, 
Belarus has successfully demonstrated that the EU is 
reluctant to allow political concerns to seriously constrain 
the growing trade relationship with its eastern neighbor. 
Zaiko pointed out that the EU is Belarus' second largest 
trading partner after Russia, accounting for some 30 percent 
of Belarus' foreign trade, and Belarus has proven to be a 
stable transit country for trade between the EU and Russia. 
Political scientist Vyacheslav Pozdnyak observed that, 
notwithstanding the visa ban and asset freezes, the EU's 
Belarus policy is proving to be "all bark and no bite, and 
Lukashenko does not mind the barking."  Analyst and freelance 
journalist Roman Yakovlevskiy added that if it were not for 
the new EU member states that border Belarus, the EU would 
have already lost its focus on Belarus. 
 
¶15.  (C) Commentators cited the EU's November 21 announcement 
of a "Shadow Action Plan" for normalizing political and trade 
relations with Belarus as the latest example of the EU's 
"incoherent policy."  Yakovlevskiy explained that the GOB has 
yet to comply with the four areas of political reform 
proposed earlier by the EU; any expectation that Lukashenko 
would take seriously the 12 areas listed in the latest 
proposal is absurd.  When Pol/Econ Chief suggested to a group 
of independent political analysts that the real intent of the 
EU's proposal was to spur interest in democratic change among 
Belarusian people, the observers remained skeptical but noted 
Belarusians' opinion could change if the GOB proved incapable 
of shielding them fro- significantly higher g!s prices next 
year. 
 
¶16.  (C) Despite Belar5s' perceived successes 7ith the EU, 
most analysts agree that Lukashenko is fully aware that the 
United States is a much harder nut to crack.  That said, the 
GOB seeks to at least keep the USG from taking measures to 
further constrain U.S.-Belarus trade -- e.g., securing the 
renewal of the Jackson-Vanik waiver and the removal of 
language referring to economic sanctions from the Belarus 
Democracy Reauthorization Act draft legislation -- without 
addressing human rights concerns.  Key members in 
Lukashenko's administration have stepped up their attempts to 
engage in a "substantive dialogue" to normalize bilateral 
relations, but the GOB routinely qualifies that such a 
dialogue would be on the basis of "mutual respect" (ref G). 
MFA Counselor Rzheusskiy strongly suggested to Pol/Econ Chief 
that the USG will have to accept that Belarus holds 
fundamentally different views on political issues, but noted 
such differences should not spill over into bilateral trade. 
 
Active Formation of an Anti-West Block? 
--------------------------------------- 
 
¶17.  (C) Yakovlevskiy and several other experts with whom we 
have spoken are convinced that Belarus is actively working to 
reinvigorate the Non-Aligned Movement (NAM) and set up 
Lukashenko as the eventual successor to Cuban leader Fidel 
Castro as the next "Papa" of the anti-West block.  Zaiko 
noted that Lukashenko is the ideal anti-globalist leader -- 
he is young (51 years old), energetic, bold, and he sits at 
the helm of a growing, stable (for now) economy in the heart 
of Europe.  In this respect, some analysts assert that 
Lukashenko's highly publicized relations with countries such 
as Venezuela and Iran are as much political as they are 
economic in nature.  Pozdynak agreed with this assessment but 
noted that Belarus' foreign policy is founded more on 
self-preservation than on ideological interests. 
 
Comment 
------- 
 
¶18.  (C) We agree with our contacts' assessments that 
Belarus' extremely tense relationship with Russia has 
prompted Lukashenko to strengthen political and economic ties 
with those countries prepared to tolerate contact with him. 
However, if Lukashenko again refuses to sell at least half of 
Beltransgaz and Russia follows through on its promise to 
significantly raise gas prices for Belarus next year, 
Lukashenko's ardently statist approach to domestic and 
foreign policy will not likely save the country from tough 
economic times.  Belarus remains extremely dependent on 
Russian energy supplies and markets, and deeper relationships 
with energy-rich countries would only partially mitigate the 
effects of economic pressure from Russia in the medium to 
long term.  Thus, despite tough talk about the need for 
greater independence, Lukashenko's only escape from crisis in 
the immediate future appears to be the Kremlin's continued 
willingness to prop up the fragile economy. 
Stewart