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. Last Updated: 07/27/2016

No Future in Depending on Cheap Gas

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The comparisons were inevitable: two disputes with former Soviet republics that disrupted energy supplies to Europe in January. Both disputes -- with Belarus this month and Ukraine last January -- had their roots in a Russian demand for more money for natural gas. In both cases, Gazprom called for an immediate jump to European prices, the customer countered with a much lower offer, and the sides ultimately settled on a number in between.

If Belarus is lucky, it will continue to follow Ukraine's lead.

Despite forecasts of economic doom as a result of its higher gas price, Ukraine posted impressive gross domestic product growth of about 7 percent for 2006, and forecasts are for 6 percent this year.

Ukraine managed this by rationalizing its use of and reducing its dependency on national gas. The steel industry, Ukraine's major source of exports, led the way by investing in furnaces that burn pulverized coal, which is cheaper.

Whether higher prices for Belarus -- the deal reached on New Year's Eve calls for an increase from $47 to $100 per 1,000 cubic meters -- will foster the same kind of rationalization remains to be seen. The differences between the structure of its exports and those of Ukraine make a direct comparison difficult.

But at the most basic level, an economy kept afloat only by supplies of cheap Russian energy does not offer much in the way of prospects for the future. Ukrainian President Viktor Yushchenko realized this, and has maintained throughout his time in office that a gradual increase to European prices was the only way for the country to develop truly competitive industries. The strongest opponent of the price increase, Ukrainian Prime Minister Yulia Tymoshchenko, was ultimately fired.

In much the same way, President Vladimir Putin has repeatedly said that Russia's economy has to reduce its dependency on energy resources. Russia's agreement with the European Union over WTO accession also calls for a gradual approach to raising gas prices, mandating a doubling of those paid by domestic industries by 2010.

Kiev seems to see the wisdom of eliminating its economic dependence on cheap Russian gas. Russia appears to be aware of the danger inherent in its own dependency. Perhaps the ultimate result of the battle with Belarus will be Belarussian President Alexander Lukashenko getting the point too.

And that would truly be ironic. Putin and Lukashenko could emerge as the unwitting initiators of much-needed economic reforms in Belarus.