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.
Miliband’s Visit to Russia furthers relations with the EU rather than Britain
David Miliband’s visit to Moscow has had only symbolic significance for the bilateral relations, leaving all the sore issues effectively intact. Agreements on multilateral problems such as Iran’s nuclear programme, Afghanistan and Middle East settlement, and nuclear disarmament, are important but can hardly make headlines. At present, there is no obvious need for either government to demonstrate political will and make sacrifices for rapid rapproachment. (Unlike in US-Russia relations where new presidents on both sides needed to mark a clear departure from their predecessors, resulting in nuclear détente).
The visit is best understood if seen not as a purely Russo-British affair, but rather a development in Russia-EU partnership. David Miliband is currently being slated for EU’s foreign policy chief position. His increased rapport with Russia could strengthen his personal professional credentials, to balance the already effective ties with the U.S. - to the benefit Europe’s foreign relations. Indeed, the most notable development of the visit so far is Miliband’s cautious support for considering Russia’s initiative of a new security framework for Europe, something that has fallen on deaf ears with Europe so far. The progress on EU-Russia security dialogue is an unexpected – but nonetheless significant outcome of Miliband’s trip to Moscow.
“No Win” EU report on Georgia-Russia War
The report by an independent commission under the EU aegis published today exonerates Russia of starting the military conflict but supports territorial integrity of Georgia. Establishing the truth is an ungrateful job, especially with regard to an armed conflict. Report’s findings exonerate both conflicting sides in some aspects while also giving each a share of blame. Such a two-way conclusion is plausible and credible, meaning that the report’s findings can form a solid basis for international consensus over the August 2008 conflict and policy decisions with its regard.
Russia celebrates the finding blaming the start of hostilities on Georgia, but will downplay the report’s conclusion that the separatist republics of South Ossetia and Abkhazia cannot be recognised based on Kosovo precedent due to the absence of established genocide of their population by Georgian authorities. The Kremlin will not change its position on the status of the republics. Realising that the push for the recognition of the republics will only build up this pressure point in relations with Europe and the U.S., Moscow may prefer to put the issue to the back burner for the time being.