Russia Energy Dispute Episode 2010: Belarus and Oil

It would not be a proper New Year without signs of an energy “war” of sorts emanating from the eastward quarters. This time Russia disputes with Belarus, and over the oil, for a change. The matter is not the price itself, but the export duty. Belarus refines Russian oil at two large facilities, but exports the bulk of the produce, also charging a hefty petrochemicals export fee – which the Russian side believe is theirs. The first attempt to make Belarus itself pay Russia export, rather than domestic, was taken in January 2007, resulting in a brief halt to Russian oil supplies to Europe and a half-way tariff solution. Belarus paid US$53 per ton as export duty instead of the initial US$180, and kept 15% of the collected export duty, while Russia retained 85%. The agreement expired at the start of this year.

Now Russia is on the assault again, although this time round it has its hands tied up by its own invention, the tripartite Customs Union with Belarus and Kazakhstan, which, as Belarusian government reasonably points out, precludes any tariff duplicity. The Belarusian side, however, is also vulnerable. According to estimations by economist Yaroslav Romantchuk, should the Russian conditions be observed, Belarus would need to pay some US$5.6 billion in 2010 in oil export duties alone, which equals over 10% of its GDP and nearly equals profits from exporting refined oil, estimated over US$6 billion. The tariff is thus effectively untenable for the Belarusian economy.

Given the high stakes for both sides, negotiations over the new oil contract may prove more difficult than either side would warrant – and take longer than the now habitual seasonal energy haggles. This is because the root cause – Russia’s subsidised energy prices remains intact in principle. To resolve this most recent impasse, Russia may be hoping to obtain control over Belarusian oil refining assets, in exchange for some lower tariffs, something that the Belarusian side will be very reluctant to part with. In any case, Belarus is likely to see conditions to worsen for the oil refining industry, which is likely to lower its share in the GPD and export in the long term. For Russia, the question is how much and who exactly will gain from the new contract: the Russian budget from the higher energy tariffs, or oil companies from being able to buy Belarusian assets on cheap. The recipients of Russian oil via Belarus in Poland and Germany can remain on quiet alert, for the attempts to cover up the dispute from both sides show that they are eager to contain the situation to themselves at least at present.