A ‘Tectonic Shift’ in Belarus’ Approach to Energy Security

The year 2019 in Belarus-Russia relations was dominated by another energy row, caused this time by the launch of Russia’s so-called ‘tax manoeuvre’ – a six-year plan aimed at gradually replacing export duties on crude oil with an increased mineral extraction tax. The main goal of the plan is to prompt Russian oil companies to invest more in refining and petrochemical industry in order to export high-marginal products instead of simple crude oil. However, one side-effect of the new scheme is that refineries will now be receiving crude oil at much higher prices. This shouldn’t be a problem for Russian companies, since the majority of them control the whole production chain from extraction to refining and can seek profits at other stages, but it poses a huge threat for Belarus, which only deals with refining.

Belarus, despite not having any significant oil reserves, for the past 20 years has been one of the major exporters of petrochemicals in the region. Thi swas made possible thanks to the heavily subsidised oil the country has been receiving from its closest ally, Russia, which it then refined and sold at the world market making large profits. At some periods, petrochemicals amounted for up to 50% of Belarus’ exports and were the main driver behind the country’s economic boom in the mid-2000s. 

But Belarus’ boom cost Russia vast sums in lost revenueRussia’s desire to cut these subsidies or at least to get more substantial concessions from Belarus in return was the main cause of multiple Russia-Belarus energy crises which have been reoccurring every few years since Putin came to power. Eventually, though, Presidents Vladimir Putin and Alexander Lukashenko have always come to an understanding and Russian oil resumed its flow to Belarus.

This time, however, the Kremlin made Lukashenko an offer he simply had to refuse – to give up Belarus’ independence and form a union state with Russia. For over a year, Belarusian officials have been desperately trying to negotiate alternative options but to no avail – the Kremlin has been adamant in its position. And it seems that the time has finally come for Belarus to face the new reality.

Last Tuesday, Aleksandr Lukashenko held a meeting with his cabinet of ministers on oil supplies and logistics where he made some truly explicit and ground-breaking statements. Here are some of his main points:

– Russia’s oil monopoly on the Belarusian market is over and the long-term course for supplies diversification is now official. The Kremlin crossed the line when it started to make political demands and blackmail Lukashenko by threatening to turn the valve off.

– Belarus is engaged in ‘very serious talks’ with the US over a cheap credit for the construction of a missing part between the Belarusian and Baltic pipeline systems. Lukashenko also mentioned Mike Pompeo’s Munich speech in which the United States Secretary of State offered up to $1 billion in financing to Central and Eastern Europe to help the region avoid reliance on Russian energy. Belarus is seriously counting on the US money and is willing to spend another $100-120 million on the project from its own sources.

– The Belarusian government expects the construction of a missing part to take 3 years, but Lukashenko wants to cut it to 1.5-2 years.

– Ideally, Belarus wants to purchase 40-50% of its oil from Russia and another 60% from elsewhere (Norway and Azerbaijan confirmed so far) through the Baltic ports and the Odessa-Brody pipeline.

– Lukashenko has also appointed a new deputy prime-minister for oil and gas, Yuri Nazarov. Nazarov can be described as a faceless Soviet-style bureaucrat who had previously only worked in forestry, so it’s hardly a breakthrough, but still worth noting.

What is actually important to note though is that last Friday, Poland got the green light from the US to create an alternative to Russia’s oil supply system to Belarus. PERN, the operator of the Polish section of the Druzhba pipeline, is now preparing it to work in reverse mode, that is, to pump oil from the tanker terminal in Gdańsk to Belarusian refineries.

Most likely the oil would come from the US, as secretary Pompeo himself promised the Belarusian president back in January that US companies are ready to cover 100% of Belarusian crude oil needs at ‘competitive prices’.

The route via Gdańsk is much more viable than the other two alternatives: through Baltic ports by rail or through the Ukrainian Odessa-Brody pipeline. A spokesperson for the Belarusian state oil monopoly Belneftekhim already called the Polish plan a ‘tectonic shift’.

Potentially, if the scheme works out, this could be one of the most unexpected and bizarre outcomes of the US energy expansion in Europe. American oil replacing Russian in Belarus, Russia’s closest ally, was something completely unimaginable a few years ago and even today it’s still hard to picture.

Two weeks ago, Igor Sechin, the head of Rosneft, paid an unexpected visit to Minsk and held extensive talks with Lukashenko. Many expected it to result in another ceasefire and return to business as usual, but Lukashenko’s speech made it very clear that this time Belarus’ will to reduce its energy dependence on Russia is serious.

It has to act quick though. In January-February Russia’s oil exports to Belarus dropped by 76% compared to the same period last year. And if the country doesn’t find alternative suppliers soon enough, it could face serious economic consequences, which could easily turn political with the summer 2020 presidential election not far ahead.

The featured image for this article is adapted from a photo © 2020 Nikolai Petrov/BelTA Pool Photo via AP