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Belarusian GDP may fall below 4% if oil and gas dispute with Russia is not resolved

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September 26, 2016 10:38
Image: belprauda.org

In Q4 2016, Transneft will supply 3 million tons of oil to Belarus. Compared with Q4 2015, the supplies will be halved due to the unresolved dispute over the price of natural gas supplied to Belarus. The cut in oil supplies will have a direct impact on industry, wholesale trade, and budgetary proceeds from taxes and may lead to GDP shrinking by more than 4% compared with 2015.

According to Transneft, in Q3 2016, about 3.5 million tons of oil will be shipped to Belarus and in Q4 - only 3 million tons. The overall volume of Russian oil supplies in 2016 may total only 18 million tons, which is 5 million tons less (22% less) than in 2015. The decrease in oil supplies is due to the unresolved dispute over the price of natural gas supplied to Belarus.

Since early 2016, Belarus stopped paying for natural gas supplies from Russia as she disagreed with the price. In early August 2016, overdue debt totalled circa USD 300 million. One of the largest suppliers of oil to Belarus, Gazpromneft, is Gazprom’s subsidiary. By reducing oil supplies, Gazprom is attempting to recover Belarus’ debt for gas. The disagreement between the states is due to the fact that, the price of natural gas has a currency component, which excludes price reductions, even amid the fall in oil prices on the world market.

The share of oil refining in the total volume of industrial production in Belarus was 16.3% in 2015. In Q4 2015, about 6 million tons of oil was supplied to Belarus and if that volume dropped to 3 million tons in 2016, Belarus industrial production index would halve and industrial performance would slump. The decline in oil production would lead to a reduction in export sales and a reduction in the wholesale trade. The share of the wholesale trade in GDP is around 6%. In addition, the Belarusian state budget would not receive the projected amount of taxes calculated in GDP.

In July-August 2016 alone, Belarus’ GDP fell by 0.3% thanks to reduced oil supply. If dispute around natural gas price remains unresolved, Russia will reduce oil supplies, which, in turn, will result in Belarus’ GDP reducing by more than 4% as compared with 2015. That said, that would be the worst result for the last 15 years.

In Q4 2016, oil supplies from Russia may halve as compared with 2015. Given the significance of refining for various economic sectors, Belarus’ GDP may fall by more than 4%, which would be the worst result in recent years.

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