Energy War 2011: Russia and Belarus squabble over oil

by Tom Washington

Like a rogue Ded Moroz, energy disputes between Russia and its neighbours have become a holiday tradition.

And hostilities are set to be renewed between Minsk and Moscow this year after oil supplies were abruptly halted on Jan. 1.

While Belarus says it has supplies to last until the end of the month, negotiations over 2011 prices are hotting up as the spectre of a cold winter hovers over the one-time Soviet comrade.

Political relations have been strained of late and although there were some difficulties in negotiating a new contract, there were high hopes it would be signed after the New Year break.

However, with everyone back to work a price has still not been agreed and there is still no delivery contract, Marina Kostyuchenko, Belarussian state oil company Belneftekhim press-secretary told Vedomosti.

European supplies

European Union energy watchers may be casting nervous glances at Belarus, which lies between Russia and the European Union and sees a considerable portion of Europe's supply pass over its territory. But insiders say that Europe has no short-term worries.

Trade sources told Reuters that oil was moving unhindered along the Druzhba pipeline across Belarus to Germany and Poland.

Russian state pipeline operator Transneft said that it was not the one who had ordered the brake on shipments. "It's not an issue for us, it's an issue for the oil traders," Igor Dyomin, Transneft press-secretary, told Reuters. "We are ready to pump. We haven't made any cuts."

Counting the cost

Last year Russia and Belarus signed an agreement to form a single economic space. Under the terms of the contract Minsk would receive Russian oil duty free, with 21.7 million tonnes planned for 2011.

In return, Minsk would hand over all duties on exports of Russian oil to Moscow.

In Russia this was presented as a generous concession, with Vladimir Putin saying it would cost the Kremlin $5.3 billion while economic development minister Elvira Nabiullina saying that Belarus would profit to the tune of $3.0 billion.

Although the agreement set out the terms for the transit of Russian oil across Belarus, it did not resolve the thorny issue of gas sales to Belarus.

At the end of 2010 Belarus paid Russia the lowest energy rates of any post-Soviet country, at just over $190 per 1,000 cubic metres of gas compared to $308 on average for Europe.

Minsk has asked Russia not to increase gas prices for 2011 to $210 - $220 per 1,000 cubic metres, as Moscow has indicated it would.

Political football

A source from Russian private oil giant Rosneft, due to supply 0.9 million tonnes to Belarus this year, says that the matter is being discussed in the highest corridors of power, although Dmitry Peskov, Putin's spokesman, denied this.

"Deliveries of oil to Belarussia are not state but commercial affairs. The Russian government cannot, of course, affect commercial negotiations," he told Vedomosti.

He did, however, say that if talks ground to a halt "it would certainly be a matter for bilateral negotiations."

A valued customer

Around 40 million tonnes (about 800,000 barrels per day) of Russian oil is pumped to Europe through Belarus every year.

Russian companies provide Belarusian oil refineries with about 80 per cent of their oil, Bank of Moscow analyst Denis Borisov told Vedomosti. Until 2010, when Minsk signed a deal with Venezuela, the figure was almost 100 per cent.


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