Russia threatens to cut off gas to Belarus

A new offensive in the European gas war loomed last night after Russia vowed to press ahead with a threat to cut off gas supplies to neighbouring Belarus on New Year's Day leaving the country of 10 million in the cold and European supplies in peril.

With just three days to go before the current contract expires, the two countries have failed to agree a price for Russian gas next year and talks appear deadlocked, raising the prospect that Belarus will be left without gas in 2007 and Moscow without a reliable partner to transit its energy exports to points further west in Europe.

Russia sends about one-fifth of its European gas exports via Belarus on to countries such as Poland, Germany, and Lithuania and any prolonged dispute between Moscow and Minsk could pinch supplies to the West.

The dispute is reminiscent of a similar row between Russia and Ukraine last year that saw Gazprom, Russia's state-controlled energy giant, turn off the taps for several days causing supply shortfalls in western and eastern Europe.

At the time, Russia was accused of using its huge energy resources to bully a country seen as pursuing an anti-Russian course. But this year it is Belarus, traditionally a Kremlin ally, that is on the receiving end of Gazprom's wrath.

Gazprom has demanded that Belarus begin moving towards "market" prices for Russian gas and away from its heavily subsidised rate of $47 (£24) per 1,000 cubic meters, the lowest rate granted to any customer outside Russia's borders.

Gazprom says Belarus should pay $105 per 1,000 cubic meters next year, a price it says is still considerably lower than average European market rates of about $230. But Belarus, a country often known as "Europe's last dictatorship" because of its hard line Soviet-style government, says it cannot afford the increase and some Belarussian politicians have suggested Moscow is using the gas issue to try to soften it up ahead of a mooted union of the two countries.

Vladimir Putin is due to step down as Russian President in 2008 and it has been suggested he would like to complete the union - by holding a referendum in both countries - before he hands over to someone else.

Belarussian fears of being swallowed up by its bigger neighbour have been reinforced by Gazprom's insistence that it wants Belarus to hand over a 50 per cent stake in its own pipeline network over four years by making part of the payment for Russian gas in shares, not cash.

As the crisis has deepened, Belarus has made it clear it will hamper Russian exports of gas to Europe if it is cut off itself by siphoning off gas earmarked for countries such as Poland and Germany. Yesterday a Gazprom spokesman warned Belarus against what he made clear amounted to theft.

"Yamal-Europe is exclusively an export pipeline" and is owned by Gazprom, he said, adding that its connections with the rest of the Belarusian system are sealed and that any attempt to disrupt the flow through Belarus would be detected by the company at its headquarters in Moscow.

The Kremlin insists it is not playing politics but can simply no longer afford to subsidise Belarus in an era when its state-controlled companies are listed on the London Stock Exchange and have embraced Western-style capitalism. Nor, the Kremlin adds, is it one rule for Belarus and another for Russian or other foreign customers.

Under a recently approved government edict, Russian domestic gas prices are set to steadily increase in the years ahead and other former Soviet republics such as Ukraine, Georgia, Moldova and Armenia have all been asked to start paying what Moscow calls "a market rate" for its gas. However critics have pointed out Gazprom buys some of the gas it supplies to its former Soviet neighbours at knockdown prices from Turkmenistan which it then sells on with a huge markup.

Few expected Minsk and Moscow to fall out so suddenly and so seriously. The countries have been talking about joining forces since the 1990s.