Belarus to Reduce Russian Oil Imports By 27%

Belarus is set to cut its level of crude imports from Russia by more than a quarter. The national government has implemented a measure to reduce imports from neighbouring Russia by 27% to 15.8 million tonnes, equivalent to 317,422 barrels per day (bpd), this year.

Belarus has moved to cut imports due to a hike in the payments upon duty in its oil supply contract, which was renewed earlier this year.

However, by making such a move Belarus risks positioning itself with a weakened role at the negotiating table in future contract renegotiations - which are inevitable. Russia, meanwhile, is likely to see its position on the opposite side of the table strengthen.

The problem stems back to April 2007 when, as part of a broader phasing out of energy subsidies to former Soviet satellite states, Russia decided to impose a limited export duty on crude oil exports to Belarus. This in turn forced Belarus and insisted that Belarus increase excise tax on oil products.

Under the oil supply pact between the two nations that was inked at the same time, Belarus still prospered from preferential terms of trading for oil with Russia, with its refineries paying only 35.6% of the standard Russian crude export tariff. This left them with a healthy profit when exporting their refined products to European customers at market prices.

However, diplomatic relations flared up between the two nations at the rear end of last year when the contract was close to its end date.

Russia said that it was committed to continuing to provide tax free oil to its neighbour but that the country should pay export duties on the oil it in turn exported to other parts of Europe.

Standing its ground, Belarus argued that such an amendment want against a customs union signed between the two countries during 2009.

Furthermore, Belarus responded by demanding higher transit fees for Russian oil flowing across its territory.

Having failed to resolve the dispute over the new contract terms by the expiry of the old contract, Russia cut off crude supplies to Belarus in January 2010. With a costly shutdown of its two refineries looming, Belarus made concessions and a deal was signed on January 27.

Under the final deal signed January deal, Belarus's duty-free oil allowance was significantly lowered cutting out the possibility of continuing to profit from re-exports, but it also meant that Belarus is now paying full Russian export duties on around 27% of its domestic consumption.

It is this spike in costs that is the main factor behind Belarus's decision to reduce oil imports this year to 15.8 million tonnes (or, just over 317,000 bpd). Under the terms of the new deal, Belarus will import 6.3 million tonnes of oil duty free, and 9.5 million tonnes that incur the full duty, hitting the nation hard in the pocket.


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