Customs Union, Gazprom in Trouble

The big story this week was the decision of Russia, Kazakhstan and Belarus to unilaterally withdraw from the WTO and form a Customs Union (read analysis here).

Curiously, this big policy initiative -- years in the making -- was thrown into doubt when Russia slapped a milk ban on Belarus. This also comes at a time when Moscow has created a commission to shape its PR image. President Medvedev played the usual bratstvo card: "Talking about these latest events, we were a bit taken aback, of course, by the way our Belarusian friends and partners reacted to what was happening. The situation is really quite simple, after all. What we need is civilized trade, even between such close and brotherly countries as Russia and Belarus."

The other big story was Gazprom's self revelation that it is in big trouble. Gazprom's revenue is expected to shrink to $40 billion from last year's $73 billion, while production is dropping and demand in Europe is shrinking. Investments will reach 400 billion rubles -- half of last year's amount. Not to depress spirits, a mountain in the Urals will be named Mt. Gazprom.

Therefore it is not surprising, that as soon as the Belarusian milk ban was lifted, Minsk got a nasty bill of $230 million for debts incurred over January-April. Fears of yet another gas crisis with Ukraine are dominating talks in Brussels.