By Andrei Makhovsky
MINSK (Reuters) - Belarus's authoritarian leader Alexander Lukashenko will meet Russia's Vladimir Putin in St Petersburg on Monday, signalling the two sides are looking to settle their differences as a crackdown on protests in Minsk risks new Western sanctions.
Russia and Belarus are traditional allies but relations became strained after Russia annexed Ukraine's Crimea peninsula in 2014, a move Lukashenko described as a "bad precedent". Russia cut the subsidies it uses to keep its one-time Soviet vassal afloat, worsening an economic downturn in Belarus.
But Lukashenko's suppression of street demonstrations could undo his recent efforts to court the West and nudge him back towards Moscow. Hundreds were arrested last weekend in Minsk, some dragged away or beaten by riot police.
Moscow and Minsk are in a dispute over the price that Belarus pays for imports of Russian gas and over a reduction in the volumes of crude oil that Russia ships to Belarus.
Kremlin spokesman Dmitry Peskov, on a regular conference call with reporters, said the trade disputes would be on the agenda at Monday's meeting. Separately, Russia's ambassador to Minsk said all oil and gas issues could be resolved.
Belarus is in its third year of recession, hit by the knock-on effects of a downturn in Russia and a fall in oil prices. Monthly wages have fallen to $380 from $630 in 2014.
Russia's own finances are squeezed and the country is still under Western sanctions following the Crimea annexation. Over the past year, Russia has reduced oil supplies to Belarus by 20 percent, hitting Belarussian refiners and knocking, in Minsk's estimates, 1.5 percentage points off economic growth.
The result is a fraying social contract between Belarussians and Lukashenko, a former state farm manager who has ruled for nearly a quarter of a century promising jobs, steady incomes and stability in exchange for obedience.
PARASITES AND SCUMBAGS
The protests in Belarus coincided with similar ructions across the border in Russia. But while in Russia the protests were powered by the young, in Belarus a significant portion was made up of Lukashenko's traditional base.
The foreign minister of neighbouring Lithuania warned that the crackdown would affect Belarus's future ties with the EU.
"If once again there are political prisoners, then without any doubt we will again return to the question of sanctions," Linas Linkevicius told Lithuanian public radio this week.
Police had not interfered in earlier demonstrations but last week Lukashenko hardened his stance against the protesters, calling them "scumbags" and accusing a "fifth column" of plotting to overthrow him and plunge the country into chaos.
"It was terrible, it was a nightmare. A 70-year-old grandmother was dragged by several policemen. The powers that be have shown they despise the people," said Vladimir, a 49-year-old protester.
"I work in a private company but recently it has become harder for us to live. People are poor. Only those who are beating people today are getting a good salary."
The demonstrations began on February 17, almost exactly a year after the EU lifted sanctions on Belarus citing its improved human rights record, and doubled an aid package to 29 million euros from 14.5 million in 2015.
The trigger for the protests was a new tax of around $250 on citizens working less than 183 days a year, locally known as a law against "social parasites". Belarussians said the tax unfairly punished those unable to find work.
Nikolai Statkevich, a Belarussian opposition leader who spent four years in prison after a previous crackdown, said the protests would continue.
"Dialogue with the West began with my release. If I am now imprisoned in a criminal case, the basis for the dialogue is lost. And the authorities need money to maintain a machine of repression," Statkevich said.
"The social contract in Belarus is changing - there was loyalty in exchange for benefits, then loyalty in exchange for stability," he said.
"Now the money is enough only to maintain the loyalty of small groups, in particular the 'siloviki'," he said, referring to those in power whose roots go back to the security services.
(Additional reporting by Maria Tsvetkova in MOSCOW and Andrius Sytas in VILNIUS; Writing by Matthias Williams; Editing by Gareth Jones)