Page 4 - FSUOGM Week 05 2020

FSUOGM COMMENTARY FSUOGM
Belarus-Russia energy
dispute rages on
What makes this dispute stand out compared with previous ones is its complexity
BELARUS
WHAT:
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WHY:
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WHAT NEXT:
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BELARUS and Russia still show no signs of resolving their most serious ever dispute over oil and gas supplies – a row that began almost a year and a half ago.
A er failing to agree a new long-term oil supply contract, Russia halted crude ship- ments to Belarus in early January, causing the country’s re neries to shut down. It resumed shipments days later, but at a much lower level, with Russian data indicating that total deliveries last month were down 73.7% year on year. A lasting agreement on these has still not been reached.
Similarly, the two sides were unable to clinch a new long-term contract for gas supplies start- ing this year, instead agreeing on a temporary deal, covering Russian supplies to Belarus in January and February only.
Talks have continued, but neither side has shown a willingness to compromise. Moscow is in a stronger position in the dispute, given Bela- rus’ overwhelming economic dependence on Russia. But the longer it continues, the greater the risk of irreparable damage to Belarus-Russia relations, potentially derailing Russia’s push to form a uni ed state with its western neighbour.
Economic dependency
Belarus relies on Russia for almost all its oil and gas needs. Piped directly from elds in Siberia, these supplies are provided cheaply as a de-facto subsidy to the Belarusian economy, to keep the country in Moscow’s political orbit.
Belarus typically receives 24mn tonnes (480,000 barrels per day, bpd) of duty-free Rus- sian oil each year, which it re nes into petro- leum products that it sells in Europe. These
sales, worth billions of dollars, typically account for around 20% of Belarus’ export revenues. Any Russian oil the country does not process is re-exported at a higher price, generating further hundreds of millions of dollars in export reve- nues and taxes.
Similarly, Russia’s Gazprom charges Belarus less than half of what its other European custom- ers pay for gas supplies, its purchases averaging 20bn cubic metres annually.
is has proved to be a shaky arrangement, with the two countries frequently seeking to adjust the price of these supplies over the years. Disputes have occurred whenever Belarus has felt it can extract more concessions from Russia by exploiting certain political circumstances, or when Russia has sought to rein in support for nancial reasons.
What separates the current row from previ- ous disagreements is its complexity.
Besides lower oil and gas prices, Belarus is also demanding compensation from Russia for changes it introduced last year to its oil tax code. Under its so-called tax manoeuvre, Russia plans to reduce export duty on oil and petroleum products from 30% in 2018 to zero in 2024, while compensating for the loss of revenues by increas- ing mineral extraction tax (MET).
is will erode the bene t Belarus currently obtains from receiving export duty-free Russian oil. Minsk has therefore insisted that Moscow provide it with $5.8bn to cover losses it expects to incur over the next ve years as a result of the tax changes.
Belarus is seeking hundreds of millions of dollars in additional compensation in relation to Russia’s dirty oil crisis last year, which saw
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w w w . N E W S B A S E . c o m Week 05 05•February•2020