Oil Supplies: A Short Leash

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April 22, 2016 18:24

At the end of 2012 it was announced that Belarus and Russia had reached an agreement on the supply of Russian oil to Belarus at nearly the same volume as requested by the Belarusian side, but only for the first quarter of 2013. 

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In the first quarter of 2013, Belarus has received a certain guarantee for the stable work of oil refinery plants. However, such a short-term agreement is, in fact, a lever to force Belarus to fulfill all the provisions of the reached agreement, in particular, to supply part of the refined oil to Russia, and to eliminate different options to resume re-export of Russian oil and / or petroleum products without paying export duties to the Russian budget.

Oil refinery is one of the key industries of the Belarusian economy. According to the results of the eleven months of 2012, oil export accounted for 30% of Belarus’ total exports. OJSC “Naftan” is the biggest taxpayer in Vitebsk region and is second on the list of most profitable Belarusian companies for the first nine months of 2012, earning BYR 2 730 billion in net profit. A key factor for successful performance of oil refinery plants is the stability of oil supplies. 

Following negotiations, the parties reached an agreement to supply 5.07 million tonnes of oil to Belarus in the first quarter of 2013 by pipe and another 750,000 tonnes by rail. The expediency of rail shipments is questionable due to the more expensive logistics as compared to supplies by pipe. However, if the agreed volume of oil is supplied in the first quarter of 2013, the Belarusian oil refinery plants will receive a volume of oil that is close to the maximum capacity of refineries. This will allow the volume of production to be on the same level as in the first quarter of 2012 and will also have a beneficial impact on the whole economy.

It should be reminded that Belarus requested 23 million tonnes of oil for 2013, while Russia offered only 18, 5 million tonnes. If the agreed volume f supplies remains the same as in the first quarter for the subsequent periods, this means that more than 20 million tonnes of oil will be delivered within a year. The condition for a compromise was an offset agreement to supply back to the Russian Federation around 2 million tonnes of oil that had been refined in Belarus over the year.

Meanwhile, Russia has installed a lever to influence Belarus. A decrease in supplies of oil by pipe in the second and subsequent quarters can be used as an argument to force the Belarusian side to fulfill obligations on the counter deliveries of petroleum products which Belarus failed to meet in 2012. Also, it is possible to conduct negotiations on the privatization of several Belarusian enterprises.

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