Does Belarus stand a chance in a new oil war with Russia?
Vadzim Smok, BelarusDigest
18 January 2017, 21:41
The year 2016 left Belarus with a serious economic problem: its unresolved dispute with Russia over energy.
On 9 January 2017, the Russian daily Kommersant revealed that Moscow will reduce oil supplies to Belarus from 4.5 to 4m tonnes in the first quarter of 2017. In doing so, Russia is pressing Belarus to pay its $425m gas debt.
Simultaneously, Belarus announced the discovery of a new oil field on its territory. Unfortunately, its own oil reserves allow for 1.6m tonnes worth of production annually, while Belarus needs around 25m for its refineries.
Oil products remain Belarus's No.1 export commodity, making a third of Belarus export revenues. With no alternative options for hydrocarbon supplies and Minsk's decreasing political and security leverage, the country will have to play by Moscow's rules.
Oil reserves in Belarus
On 3 January, the Belarusian official media outlet BelTA reported the discovery of a new oil field in the Rečyca district in southern Belarus. The field, however, is classified as hard-to-reach because of its depth. Preliminary research estimates the volume of the field at around 850,000 tonnes of oil. Totally, Belarusian oil reserves are estimated at 50m tonnes, although larger fields may exist, as Minister of Natural Resources and Environment Protection Andrej Kaŭchuta has claimed.
Belarus extracts around 1.6m tonnes of oil on its territory annually. This amount is tiny compared to world oil production leaders. Russia, for example, produces roughly the same amount daily. The capacities of Belarusian refineries, however, require an additional 24m tonnes per year, which the country traditionally buys in Russia.
Processing Russian oil and the export of oil products has guaranteed economic stability for Lukashenka for almost two decades. However, the Putin era brought regular oil and gas tensions, which forced Belarus to seek alternative supplies. Belarus even resorted to importing oil from Azerbaijan and Venezuela in 2010-2011 and 2016, as well as re-examining its own reserves.
![Does Belarus stand a chance in a new oil war with Russia?]( "Does Belarus stand a chance in a new oil war with Russia?")
In 2016, Belarus and Russia participated in another oil war. However, this time around events are unfolding in a new political context and its results are less obvious. The Russian media have attacked Belarus for alleged turning to the West and redundantly striving for independence. It has also attacked its policy of 'soft Belarusianisation', all of which calls to mind the 'Ukrainian scenario'.
Russia’s food safety administration consistently bans Belarusian food exports for various reasons. Moreover, the cut of oil supplies from Russia has hit the receding Belarusian economy heavily and created serious concern for Belarusian leadership .
Another hydrocarbon war
On 9 January, the Russian daily Kommersant revealed that Russia will cut oil supplies from 4,5 to 4m tonnes in the first quarter of 2017. In doing so, Russia is trying to persuade Minsk to pay its $425m gas debt. According to previous arrangements, Belarus was expected to receive a total of 18m tonnes of oil in 2017, but the sides failed to conclude a deal on Belarus’s gas debt by the end of 2016.
The dispute started in January 2016, when Belarus demanded that Moscow reduce its gas price for Minsk because of falling prices on the global market and the inability of Belarusian industries to compete on the Eurasian Economic Union market because of unequal energy prices. Russia denied the claim, and Belarus unilaterally decided to pay less, accumulating a debt of $425m by the end of 2016.
Moscow responded by putting conditions on the gas debt by limiting the amount of oil supplied to Belarus, a crucial resource for the Belarusian economy. A planned 5,3m tonnes per quarter contracted to 3,5m and finally to 3m tonnes in the last quarter of 2016. Before 1 January 2017, the sides were close to a deal but failed to finalise it. As a result of supply cuts, in January-October 2016, Belarus exported 15% less oil products compared to the same period of 2015, and 38% less in terms of money, which became a significant blow to the Belarusian budget.
No way out of the oil trap?
Belarusian-Russian relations saw a number of oil and gas wars in the 2000s, which usually ended in mutual concessions. Although Russia's image suffered as a result of these wars, it always retained a stronger position in negotiations.
![Does Belarus stand a chance in a new oil war with Russia?]( "Does Belarus stand a chance in a new oil war with Russia?")
Reductions or delays in oil supplies are inevitably extremely costly for Belarus, as oil products have been its No.1 export commodity for decades. Oil production exports make up around a third of Belarus's exports, which makes the country vulnerable to global market fluctuations.
Faltering oil prices hit Belarus heavily, as the adjacent diagram shows. Oil revenues peaked in 2012, with $16,4bn of revenues, and have steadily declined since. In 2016 Belarus received only $6,1bn from oil sales, a $10bn difference from 2012.
Moreover, there are still no viable alternatives to oil and gas supplies from Russia for Belarus. Minsk attempted to teach Russia a lesson by importing oil from Venezuela and Azerbaijan in 2010-2011, when it received around 1,5m tonnes of oil by sea via the Ukrainian port of Odessa.
During the new hydrocarbon war, Minsk imported 85,000 tonnes of Azerbaijani oil in autumn 2016, and Lukashenka revealed that Belarus was negotiating oil supplies with Iran. However, the negotiations apparently led to nothing, and Azerbaijani oil cannot cover the deficit of a few million tonnes of oil.
The experts considered imports from outside Russia to be an economically unfeasible option. However, regardless of the direct gains, Minsk managed to secure better terms in its oil deals with Moscow by using these alternative deliveries as leverage, according to Vice Prime Minister Uladzimir Siamaška. But the current context of the Belarus-Russia disagreement have changed significantly since 2011 and Belarus became much more vulnerable economically, while Russia continues to assert its influence in the region and globally. Can Minsk counteract the Kremlin’s pressure in this new context?
There seems to be little chance for Belarus to gain an upper hand in this conflict. Russia needs political allies less and less, as it increasingly relies on itself. This means that the strategy of 'brotherly rhetoric' in exchange for economic gains does not work anymore in Belarus-Russia relations. Besides, Russia is taking steps in the military sphere to ensure its independence from the Belarusian army on the western front.
This significantly reduces Minsk’s leverage and restricts Lukashenka’s tricks with the Kremlin. With no alternative options for energy supplies and a heavy economic dependence on Russian resources, Belarus will have to play according to Russian rules for the foreseeable future.
Vadzim Smok is the Ostrogorski Centre coordinator in Belarus and researcher at the Institute of Political Studies 'Political Sphere' based in Minsk and Vilnius.
18 January 2017, 21:41
Photo: dneprovec.by
On 9 January 2017, the Russian daily Kommersant revealed that Moscow will reduce oil supplies to Belarus from 4.5 to 4m tonnes in the first quarter of 2017. In doing so, Russia is pressing Belarus to pay its $425m gas debt.
Simultaneously, Belarus announced the discovery of a new oil field on its territory. Unfortunately, its own oil reserves allow for 1.6m tonnes worth of production annually, while Belarus needs around 25m for its refineries.
Oil products remain Belarus's No.1 export commodity, making a third of Belarus export revenues. With no alternative options for hydrocarbon supplies and Minsk's decreasing political and security leverage, the country will have to play by Moscow's rules.
Oil reserves in Belarus
On 3 January, the Belarusian official media outlet BelTA reported the discovery of a new oil field in the Rečyca district in southern Belarus. The field, however, is classified as hard-to-reach because of its depth. Preliminary research estimates the volume of the field at around 850,000 tonnes of oil. Totally, Belarusian oil reserves are estimated at 50m tonnes, although larger fields may exist, as Minister of Natural Resources and Environment Protection Andrej Kaŭchuta has claimed.
Belarus extracts around 1.6m tonnes of oil on its territory annually. This amount is tiny compared to world oil production leaders. Russia, for example, produces roughly the same amount daily. The capacities of Belarusian refineries, however, require an additional 24m tonnes per year, which the country traditionally buys in Russia.
Processing Russian oil and the export of oil products has guaranteed economic stability for Lukashenka for almost two decades. However, the Putin era brought regular oil and gas tensions, which forced Belarus to seek alternative supplies. Belarus even resorted to importing oil from Azerbaijan and Venezuela in 2010-2011 and 2016, as well as re-examining its own reserves.
Oil fields in Belarus. Yellow - active extraction, pink - perspective areas. Source: naviny.by
In 2016, Belarus and Russia participated in another oil war. However, this time around events are unfolding in a new political context and its results are less obvious. The Russian media have attacked Belarus for alleged turning to the West and redundantly striving for independence. It has also attacked its policy of 'soft Belarusianisation', all of which calls to mind the 'Ukrainian scenario'.
Russia’s food safety administration consistently bans Belarusian food exports for various reasons. Moreover, the cut of oil supplies from Russia has hit the receding Belarusian economy heavily and created serious concern for Belarusian leadership .
Another hydrocarbon war
On 9 January, the Russian daily Kommersant revealed that Russia will cut oil supplies from 4,5 to 4m tonnes in the first quarter of 2017. In doing so, Russia is trying to persuade Minsk to pay its $425m gas debt. According to previous arrangements, Belarus was expected to receive a total of 18m tonnes of oil in 2017, but the sides failed to conclude a deal on Belarus’s gas debt by the end of 2016.
The dispute started in January 2016, when Belarus demanded that Moscow reduce its gas price for Minsk because of falling prices on the global market and the inability of Belarusian industries to compete on the Eurasian Economic Union market because of unequal energy prices. Russia denied the claim, and Belarus unilaterally decided to pay less, accumulating a debt of $425m by the end of 2016.
Moscow responded by putting conditions on the gas debt by limiting the amount of oil supplied to Belarus, a crucial resource for the Belarusian economy. A planned 5,3m tonnes per quarter contracted to 3,5m and finally to 3m tonnes in the last quarter of 2016. Before 1 January 2017, the sides were close to a deal but failed to finalise it. As a result of supply cuts, in January-October 2016, Belarus exported 15% less oil products compared to the same period of 2015, and 38% less in terms of money, which became a significant blow to the Belarusian budget.
No way out of the oil trap?
Belarusian-Russian relations saw a number of oil and gas wars in the 2000s, which usually ended in mutual concessions. Although Russia's image suffered as a result of these wars, it always retained a stronger position in negotiations.
Source: Belstat and author's calculations
Reductions or delays in oil supplies are inevitably extremely costly for Belarus, as oil products have been its No.1 export commodity for decades. Oil production exports make up around a third of Belarus's exports, which makes the country vulnerable to global market fluctuations.
Faltering oil prices hit Belarus heavily, as the adjacent diagram shows. Oil revenues peaked in 2012, with $16,4bn of revenues, and have steadily declined since. In 2016 Belarus received only $6,1bn from oil sales, a $10bn difference from 2012.
Moreover, there are still no viable alternatives to oil and gas supplies from Russia for Belarus. Minsk attempted to teach Russia a lesson by importing oil from Venezuela and Azerbaijan in 2010-2011, when it received around 1,5m tonnes of oil by sea via the Ukrainian port of Odessa.
During the new hydrocarbon war, Minsk imported 85,000 tonnes of Azerbaijani oil in autumn 2016, and Lukashenka revealed that Belarus was negotiating oil supplies with Iran. However, the negotiations apparently led to nothing, and Azerbaijani oil cannot cover the deficit of a few million tonnes of oil.
The experts considered imports from outside Russia to be an economically unfeasible option. However, regardless of the direct gains, Minsk managed to secure better terms in its oil deals with Moscow by using these alternative deliveries as leverage, according to Vice Prime Minister Uladzimir Siamaška. But the current context of the Belarus-Russia disagreement have changed significantly since 2011 and Belarus became much more vulnerable economically, while Russia continues to assert its influence in the region and globally. Can Minsk counteract the Kremlin’s pressure in this new context?
There seems to be little chance for Belarus to gain an upper hand in this conflict. Russia needs political allies less and less, as it increasingly relies on itself. This means that the strategy of 'brotherly rhetoric' in exchange for economic gains does not work anymore in Belarus-Russia relations. Besides, Russia is taking steps in the military sphere to ensure its independence from the Belarusian army on the western front.
This significantly reduces Minsk’s leverage and restricts Lukashenka’s tricks with the Kremlin. With no alternative options for energy supplies and a heavy economic dependence on Russian resources, Belarus will have to play according to Russian rules for the foreseeable future.
Vadzim Smok is the Ostrogorski Centre coordinator in Belarus and researcher at the Institute of Political Studies 'Political Sphere' based in Minsk and Vilnius.
