BELARUS NEWS AND ANALYSIS

DATE:

08/01/2007

Europe: Feeling the Pinch from the Russo-Belarusian Dispute

Summary

Oil refineries in Europe reported Jan. 8 that interruptions in the shipment of Russian crude oil via Belarus were causing supply shortages. Though the supplies likely will be back to normal within a few days, this is not the first -- or the last -- disruption in Russian energy supplies to Europe. Whether due to commercial disputes with its former states and satellites or Moscow's use of energy as a political weapon, secure and string-free energy from Russia is a thing of the past.

Analysis

Energy firms across Poland and Germany reported Jan. 8 that Russian oil supplies transported through Belarus were not arriving according to agreed-upon schedules. Refineries in Ukraine and Hungary appear to be on the cusp of similar problems. These disruptions have not and will not force shutdowns -- all the states and facilities have sufficient emergency supplies to operate for weeks without the Russian crude -- but they are a none-too-gentle reminder that the days of reliable energy supplies to Europe from the East are a thing of the past.

These are hardly the first interruptions in Russian energy supplies to Europe. Since they started three years ago, such disruptions have included disputes or shortages that limited oil, natural gas and/or electricity deliveries to nearly every European state.

Some of those interruptions -- like the one involving Belarus -- can be explained as commercial disputes.

In this case, Russia on Jan. 1 ended a deal that had formerly existed to reward Minsk for its loyalty, halting subsidies for crude oil to Belarus and imposing a $24.65 per barrel duty. Under the old terms, Russia sent Belarus more crude than it needed, so not only was the Belarusian economy subsidized with cheap energy, but Minsk could then ship the extra oil to Europe at market rates, pocketing the profit -- nearly $2 billion in 2006.

The end of the deal punched a mammoth hole in the budget of Belarus, a country in which the gross domestic product totals only about $30 billion. In retaliation, and to compensate for the shortfall, Minsk unilaterally increased transit tariffs on the 1.8 million barrels per day of crude that Russia ships across Belarus to Europe. The new rates were supposed to kick in Jan. 6. But a related price-and-supply dispute between the Russian government (which controls the oil transport network) and Minsk left Belarus' two refineries without assured supplies.

Russia reduced oil deliveries to Belarus by the amount normally used by Belarus' refiners, but the Belarusians kept tapping the pipelines and shortages manifested downstream in Poland, Germany, Ukraine and Hungary. Russia -- in order to punish Belarus -- then simply shut down the line completely.

The dispute is a reflection of a forming geopolitical fissure between Russia and what once was its only reliable ally. This issue likely will be sewn up quickly, if only because Russia is Belarus' sole energy supplier. But that hardly means the sniping -- and the disruptions -- will not resurface.

Though this -- like a near-disruption of natural gas supplies in December 2006 involving Belarus and one in January 2006 involving Ukraine -- can be called a commercial dispute, it is obvious to all but the propaganda experts that there is a core political aspect as well. Anytime a country in Russia's near abroad has a conflict of interest with Russia -- not exactly a rare occurrence -- the energy supplies of European states farther down the pipeline become threatened. In Moscow's unofficial rhetoric, this is one reason Europe should encourage Russia to keep a tight grip on its near abroad. But for most European states -- particularly those in Central Europe -- it is one more reason to find alternatives to Russian energy.

Since it cannot rely on Russian energy, Europe is looking for ways to mitigate the risk. However, it will not be easy to find substitute sources for all the kinds of energy Russia supplies to Europe.

The hardest to replace is natural gas. Since natural gas is, well, a gas, it is difficult to transport without a multibillion dollar pipeline infrastructure. Since one of those -- the world's most extensive -- already exists between Russia and Europe, Europeans would have to be quite put out with Moscow to invest in replacement options, which include building massive new connections to Algeria, Libya, Iran, Iraq and Egypt -- states that few put at the top of their list of reliable partners. Other possibilities are tankering the stuff in liquefied form, doing away with the industries that use natural gas (with the obvious adverse effects on the European economy) or substituting nuclear power for natural gas-fired electricity plants. All options are expensive, time-consuming and accompanied by their own problems -- yet most of the European states affected are moving forward on some or all of these options.

Oil is easier. Though there is an oil pipeline network, similar to the natural gas network, linking Russia to Europe, oil is a liquid and is more readily transportable via tanker. In fact, the Polish refineries affected by the recent Belarusian-Russian problems have already announced that they will simply switch to waterborne (probably Norwegian) supplies.

At the end of the day, it matters little to the European states whether Russian energy interruptions occur because the Russians are pressuring someone, because there is a commercial dispute or because the Russians - because of cold weather, creaking infrastructure or failing reserves -- are simply unable to deliver supplies. The bottom line is that the needed energy is not there, and the Europeans must plan accordingly.

As the European Commission said in a statement regarding the Jan. 8 interruptions, "There is no reason to be alarmed now, but we are going to take all necessary measures just in case."

Source:

http://www.stratfor.com/products/premium/read_article.php?id=282671