Russian and Belarus Talk Oil

RUSSIAN AND BELARUS entered 2010 under a wave of debate and disagreement, as hour by hour conflicting news reports indicated progress, then deadlock, then progress again amidst talks on the price of export duty for Russian oil. Brief supply cuts to Belarus refineries came from Russia, and seemingly endless talks between the Moscow and Minsk governments ran on through the month, escalating fears throughout the wider European Union that their vital Russian oil supplies might be disrupted.

As time all but ran out, a deal was reached under which Belarus will not pay duty on its domestic consumption of crude oil—6.3 million tons—but will have to pay for any surplus. Rumours of Belarusian hopes for heightened duty-free oil deliveries from Russia were no more, and hopes to accrue profits from the country’s state-owned oil refineries were tarnished.

Finding Belarus

Belarus borders Russia on the north and east, the Ukraine to the south, Poland to the west, and Lithuania and Latvia also to the north. This landlocked East European country is a relatively new kingdom and has seen Russian, Lithuanian and Polish control during its history. The capital city of Belarus, Minsk, was founded as “Mensk” in 1067, however, it was not until the 20th century that the country was able to flourish with a true cultural identity of its own.

The Belarusian People’s Republic lasted only one year, from 1918 to 1919, after which Belarus as we know it today became a constituent republic of the Soviet Union. In 1939, the Russian administration took control after the Second Republic of Poland’s control over Belarusian lands ended, and Belarus became annexed into the USSR in accordance with the Nazi-Soviet pact. The Second World War devastated much of Belarus before the country had barely begun to identify itself, as its geographical location offered it up to be an ideal battleground.

Belarusian independence took off after the collapse of the Soviet Union. On July 27, 1990, the sovereignty of Belarus was announced and on August 25, 1991, the country officially declared its independence.  Since 1994, current President  Alexander Lukashenko has been in power. He is hailed with bringing on some soviet-era economical measures regardless of western-European disgruntlements. Both Lukashenko’s rule and the events following the 2000 Russian-Belarus treaty of cooperation contribute to current murmurings of plans to form one Union State.

A history of oil talks

The treaty in 2000 was by no means a new addition to Russo-Belarusian ties. In 1996, the Commonwealth of Russia and Belarus was formed, then the Treaty on the Union between Belarus and Russia (which was changed to the Union of Belarus and Russia) in 1997, then the Treaty on the Creation of a Union State of Russia and Belarus in 1999. The 2000 treaty marks the point at which the Union and Treaty officially began.

Excitement for the 2000 treaty appeared to be short-lived. In 2001, both Russia and Belarus reinstated their cross-border custom controls. From the Russian 2000 presidential elections, former President Boris Yeltsin was replaced by Prime Minister Vladimir Putin. Under Putin, Russian oil prices climbed and Russian-centric investment grew, allowing the nation’s economy to strengthen during his rule up to the 2008 election of Dmitry Medvedev as President (at which point Putin resumed his former post as Prime Minister).

The oil talks which take place between Russia and Belarus today date back to 2004, which was the first year in which Belarus did not have a contract for Russian oil and gas since the Soviet Union collapsed.  This was the year in which the Russian gas conglomerate, Gazprom, and the Belarus’ state-owned natural gas transportation company, Beltransgaz, were unable to agree on export/import tariffs and transportation costs.

At this same time, the Moscow government began to pay more attention to the obvious shortcomings in the Union State Treaty (2000) and the Customs Union which had already begun to falter on the exportation duties of oil and petroleum products. As Belarus was growing into a main oil exporter in the European markets, conflicts over lower export taxes which Russia insisted on levelling back in January 2004, followed suit.

Just when it seemed like January of 2004 could not have been busier, Russia’s electricity generation and power-handling company, Inter RAO UES, cut supplies to Belarus when the Minsk government refused to pay the new prices.

Conflict has continued since this catalyst year. On December 31, 2006, an agreement was signed which stated that Belarus will pay 67 per cent of European gas prices in 2008, 80 per cent in 2009, and 90 per cent 2010,  not including export duties and costs incurred in transportation. This agreement followed a lengthy battle from Russia who said that it wished to commercialise energy agreements with all of its partners.

Simultaneously, Russia implemented a customs duty on some resource exports through Belarus which, following an agreement reached in January 2007, was defined to apply to oil including further refined petroleum products. Under this agreement, domestic oil supply was stated to be duty-free and an agreement on revenue distribution for exported oil customs duties was drawn up between both countries. For 2007, this was placed at 70/30, for 2008 at 80/20 and for 2009 at 85/15 in favour of Russia’s profit portion.

Yearly change in pursuit of progress

In January 2009, Russia cut oil supplies to the Ukraine, threatening the stability of much of wider Europe’s supply. Fears of a replay of the friction taking place amidst the Minsk-Moscow oil talks recently passed were likely founded by both this most recent cut and the track record of yearly disputes.

Considering the historical links, cooperation and debate between both Russia and Belarus, it seems that the steady stream of adverse news reports is like a broken record. Both countries have come a very long way in their exploration of a Union State, the implementation of their various treaties and modifications to customs and export duties. While a long-term fix may not have presented itself yet, both countries remain dedicated to searching out an annual solution and growing and reshaping their relationship to progress in the oil industry.