Slumbering energy conflict between Belarus and Russia

Since the start of the new year, Belarus and Russia have been entangled in a small-scale energy crisis. This time it's not about gas but about oil. Belarus demands from Russia to keep supplying it with duty free oil, Russia, however, is voicing demands to continue supplies of duty free oil in 2010. Until now, the two sides have been unable to settle their differences and reach a mutually satisfying agreement.

Last week reports emerged on several occasions about a possible stop of oil flows to Belarus' refineries by Russia. Transneft warned on 13 Jan. that it could halt supplies to one of the two Belarussian refineries in Mozyr. Although supplies to Europe via the Druzhba oil pipeline are not part of the dispute and thus not affected so far, European countries receiving oil via Druzhba - Germany, Hungary, Czech Republic, Poland and Slovakia - expressed their concern.

The main stumbling block remains a disagreement about the amount of crude that Belarus can import duty free. According to Russian Prime Minister Putin, Belarus should receive 6 mln tonnes duty free in 2010, which should only be used for Belarus' domestic market. Putin argues that duties should be paid over the approx. 15 mln remaining tonnes of crude that Belarus wants to refine and consequently export. Belarus argues that within the framework of the new customs union between Kazakhstan, Russia and Belarus, which is to come into force on 1 July, no duties should be charged at all.

Belarussian state owned refineries could be faced with lower profits when Russia introduces duties on its oil <br /> exports to Belarus.

The disagreement about oil duties has fuelled Belarussian discontent over power and gas as well. Belarussian President, Alexander Lukashenko, argued last week that the new customs union should allow Belarus to purchase associated gas from Russian oil producers instead of gas from Gazprom. The Russian Energy Ministry however denied that such an alternative was possible. 

As for power, there is no consensus on the supply of power by Russian Inter RAO to Belarussian Belenergo and the transit of power to the Russian exclave of Kaliningrad and the Baltic countries. 

EEO Focus: Disagreement about the volumes of duty free oil that Belarus will be allowed to import have to be seen within the context of broader political and economic relations. Clearly, there seem to be different interpretations around the new customs union. The Russian government has been signalling lately that future "subsidised oil and gas" supplies to Belarus should be accompanied by the further political and administrative integration of Belarus into the Russian-Belarussian State Union. Moreover, Russian oil companies are interested in the privatisation of Belarus' refineries. Obviously, Belarus fears that it might lose political control over its own industries.