BELARUS NEWS AND ANALYSIS

DATE:

05/01/2010

Russia & Belarus Lock Horns Over Oil Agreement

Russia and Belarus' failure to agree a new oil trade agreement for 2010 has raised fears that European supplies of crude and refined products may be severely disrupted. The deal between the two former Soviet republics was expected to be signed before the end of 2009. However, Moscow and Minsk have so far failed to agree the terms of a new contract, which is set to replace their previous agreement which expired at the 2009 year-end. The failure to thus far ink the deal has prompted Russia to cut off crude supplies to its neighbour's two refineries. In retaliation Belarus has subsequently threatened to cut the supply of electricity via its territory to the Russian enclave of Kaliningrad.

At present, negotiations between the two countries are ongoing. However, concerns are rapidly escalating that unless a new deal is agreed soon, Belarus may begin siphoning off oil from the Druzhba pipeline intended for EU customers, which receive in the region of 800,000 barrels per day (bpd) of oil products via the route. More specifically this would pose a particular risk to Germany and Poland.

The current dispute centers on the preferential tariff that Belarus has been paying since back in 2007. Under the expired agreement, the refineries in Belarus paid only around 36% of the standard Russian crude export tariff, and therefore allowing them to make a healthy profit exporting their refined products to European customers at market prices. During earlier negotiations over the new oil deal, Russia had said that it would provide tax-free oil to Belarus for domestic consumption, but that it would charge the tariff for oil that Belarus exports to Europe. Belarus argued that this flied in the face of an agreement on a customs union that the two countries signed late last year. With neither side backing down, this divergence of positions explains why a new agreement is yet to be signed.

The urgency of the signing of a new deal is of paramount importance given that crude stockpiles at the two Belarusian refineries, known as Mozyr and Naftan, likely to last no more than a week at best. The potential impact of an oil cut-off would not be as severe on European consumers as a disruption of a similar scale would be on piped gas supplies. This is because oil can more readily be sourced from alternative supply routes.

Source:

http://www.oilvoice.com/n/Russia_Belarus_Lock_Horns_Over_Oil_Agreement/9716880be.aspx


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