Russia and Belarus Haggle over Oil and Gas Prices

The stalemate continues regarding Russia’s oil and natural gas prices for Belarus and the ensuing lack of long-term delivery contracts. No less newsworthy is the wide selection of opinions about the deadlocked negotiations. President Alyaksandr Lukashenka claims that Russia wants to sell Belarus oil at a higher price than the global standard. However, in reality, the entire latter-day haggling has been about a $10-per-ton premium for Russian oil companies. As for natural gas, Lukashenka’s position is that when Belarus sold its national gas pipeline Beltransgaz to Russia in 2011, Moscow gave assurances that the gas prices in five years would be equal to domestic Russian prices (Eurasia.expert, January 10, 2020). On January 11, Minsk further dug in its heels by introducing an ecological tax of 0.35 Belarusian rubles ($0.17) to transit each ton of crude oil or oil products 100 kilometers across Belarus (Naviny.by, January 13, 2020).

Igor Yushkov, the leading analyst of Russia’s Foundation of National Energy Security, presents the least emotional Russian take on the situation. According to him, Lukashenka’s idea to exploit the Druzhba pipeline, currently used for Russian oil transit to Europe, in order to buy petroleum from the United States and/or Saudi Arabia, delivered through the Polish port of Gdańsk, is impractical. It will neither penalize Russia nor benefit Belarus. If Russia were required to sell elsewhere the 14.7 million tons of crude oil it sold Belarus from January to October 2019, Russia’s budget would gain an additional $1.3 billion because Moscow does not currently require Belarusian companies to pay oil export fees. As for Belarus, it would have to pay for offloading oil in Gdańsk and for transporting it across Poland; whereas now, while using Russian oil, Minsk covers transportation costs only within Belarus itself (Eurasia.expert, December 29, 2019).

Usually speaking on behalf of the Belarusian pro-Western opposition, Alexander Klaskovsky asserted that the price of Russian oil in 2020 equals 83 percent of the international market price, if the latter is $68 per barrel. And the above-mentioned $10 premium by no means elevates the sale price above the global level. Lukashenka’s intransigence, however, is farsighted. When Russia completes its so-called tax maneuver in 2024 by eliminating export fees and proportionally increasing the levy on oil extraction, the cost of crude oil for both Belarusian and Russian buyers will match international market prices. But Russian customers will be subsidized to prevent domestic price hikes, whereas Belarusian buyers will not. Compensation for Belarus is conditioned on the adoption of the so-called Integration Roadmap 31, which invokes a common currency and other supranational Union State institutions (Naviny.by, January 9, 2020).

The more emotional Russian opinion was expressed last week (January 13) by Mikhail Leontyev, a press secretary for the Russian oil giant Rosneft and a well-known “patriotic” journalist. Leontyev’s message: “Lukashenka is simply cornered. This is the goal that our president [Vladimir Putin] has long been pursuing: stop the freebies. Belarus does fulfil its obligations as a military and political ally. But when it comes to the integration parameters envisaged by the [1999] Union State Treaty, nothing is done… We are paying for demagoguery. As far as I can understand, the Russian authorities are now willing to remain tough… What we are saying is, if you want preferences extending beyond the relations of two independent states, if you want us to support you financially, go down the integration route” (RadioKP, January 13, 2020).

In turn, Russia’s Deputy Prime Minister Dmitry Kozak stated that the “Russian government does not regulate oil prices for Belarus. These are private commercial contracts between our oil companies and Belneftegaz,” the purchaser of oil on Minsk’s behalf (TASS, January 10, 2020).

Writing on his Facebook page, Piotr Petrovsky, a Minsk-based pro-government analyst, ridicules Kozak’s statement: “The controlling shares of Rosneft and Gazprom belong to the state. However, the main stakeholder cannot influence their policies,” he notes, pointing out the logical flaw in the Russian deputy prime minister’s contention. Petrovsky continues, “So the question is, why does the Russian state need such forms of management under which it cannot exert influence? Also, what kind of market mechanism can there be under natural monopolies [i.e., companies that are the only providers of a product or service in a particular industry or geographic location]?” (Facebook.com/piotra.piatrouski, January 13, 2020). He further argues that corporate greed took the Union State hostage and proposes that the only remedy is the re-nationalization of those monopolies.

Meanwhile, Valeriya Kostyugova, the editor of the opposition-minded Nashe Mneiye online portal, redirects criticism back on Belarus, claiming that regular and tough haggling over oil and gas justify the very existence of the political regime in Minsk. “It is a common opinion in the pro-democracy community [of Belarus],” writes Kostyugova, “that it is the Kremlin that attacks Lukashenka; that it pressures him, so Lukashenka has to play defense. Apparently, one has to congratulate the state propaganda that managed to nurture a hero image and convincingly bestow it on Lukashenka. But what kind of weaponry […] is Moscow using now? After all, it is ready to sell gas and oil at last year’s prices, which are still the region’s best [lowest]. It is Belarus that does not want those prices; rather, it wants still cheaper ones… So what is the goal behind disseminating information about Russia’s exaggerated appetites? The goal is to eventually accept last year’s conditions and call this a new breakthrough and victory. In the meantime, the refineries and the budget will sustain losses, but this is what they are used to” (Nashe Mneniye, January 10, 2020).

What is illuminating is that all the above opinions contain a seed of truth, which is what makes the new phase of Russia-Belarus tensions so fascinating. Uncertainty is further exacerbated by the government shakeup in Moscow and a now-definitive lack of desire on the part of the Russian president to become the head of the Union State of Russian and Belarus. It is hard to disagree with the opinion that “risks for Belarus’s sovereignty have now diminished, whereas risks for the Belarusian economy have increased” (Naviny.by, January 17, 2020).