Publication: Monitor Volume: 5 Issue: 144

Last week’s successful inauguration of the Butinge maritime oil terminal has forced Russia to rethink its policy on oil deliveries to Lithuania and its overall relations with that country. Russia’s Fuel and Power Ministry and the LUKoil company–which is authorized by the government to “coordinate” Russian oil supplies to the Baltic states–had until recently sought to blackmail Lithuania into ceding control over the country’s oil sector to LUKoil, in return for guaranteed crude oil supplies to the Mazeikai refinery. The Russian side repeatedly halted the oil supplies this year in order to demonstrate its leverage and to thwart an agreement whereby Lithuania would hand over a 66 percent interest in its oil sector to the Williams International company of the United States. The stoppages at Mazeikai–the largest refinery in the Baltic states, accounting for an estimated 10 percent of Lithuania’s gross domestic product–inflicted substantial financial losses on Lithuania. Vilnius nevertheless stood up to the pressure and by its preference for the American strategic investor.

LUKoil finally had to change its tune when the American-designed Butinge terminal went into operation on July 22, demonstrating Lithuania’s potential as an oil transit country. It also demonstrated that Lookup’s leverage as a Russian supplier is not unlimited: the first oil cargo loaded at Butinge came from Yukos, Russia’s second-largest oil company, which plans to export 2.5 million tons annually through Butinge.

On the same day, LUKoil submitted a new offer: It would content itself with a 33 percent interest in Lithuania’s oil sector, rather than a majority interest; and would guarantee annual deliveries of 6 million tons of crude oil to Mazeikai, rather than the 4 million it had offered until now. Lithuania’s Economics Minister Eugenijus Maldeikis, acknowledging the shift in the Russian position, described the new offer as “very serious.” The current, upward trend in international oil prices also undoubtedly stimulated the Russian change of attitude.

Lithuania’s decision to build the Butinge terminal dates back to 1990 as a response to Moscow’s first oil embargo. The U.S. company Fluor Daniel, an international leader in the oil transportation sector, directed the construction work from 1995 to date; the construction cost US$300 million. The terminal’s annual handling capacity is 8 million tons of crude oil, calculated for 280 days of favorable loading weather. An additional annual capacity for 2.5 million tons of refined oil products is soon to be completed. The way seems clear for Lithuania to accomplish her national political and security objective of privatizing the oil sector under Western, rather than Russian control (BNS, Radio Vilnius, Bloomberg, July 21-23).