BELARUS NEWS AND ANALYSIS
DATE:
06/01/2010
Russia's Fight with Belarus Threatens European Oil Supplies
by Kristy Kershaw
This oil depot in Belarus is along the Druzhba pipeline that carries Russian oil to Europe. (image: nytimes.com)
Tensions are high between Russia and the former Soviet republic of Belarus, the Wall Street Journal reported Tuesday, with Belarus threatening to cut off electricity to Russia's westernmost region.
Belarus raised the stakes in an energy dispute that threatens midwinter disruptions for a pipeline system that supplies about 10 percent of the EU's oil. Russia recently throttled back on supplies through the Druzhba pipeline, the main route for Siberian oil, after a pricing deal expired on December 31. The core of the dispute rests on Russia's imposition of a new tax structure on the oil that Belarus siphons from the Druzhba line for refining. The demands could cost Belarus an estimated $5 billion this year, more than 10 percent of its GDP.
While deliveries have been resumed and much of Europe's supply is buffered by reserves, effects have already been felt throughout the oil industry. Crude oil prices rose on Monday to $81 a barrel, and the average retail price of heating oil increased by 8 cents in the northeastern United States. The very public dispute between Russia and Belarus is one of several reasons that the new year (and decade) started with oil futures so high.
The conflict is not the first of its kind, but rather mirrors a pattern set by Russia in similar disputes with Belarus in 2007, along with a Ukrainian natural gas dispute in both 2007 and 2009. As illustrated in this 2007 article from the BBC, the details strikingly echo the current dispute, with exports through the Druzhba system halted after Belarus balked at imposed tax increases on their gas supplies. Likewise in 2009, the Russian natural gas company Gazprom cut supplies to the Ukraine over an owed debt of $2.4 billion.
Russia is a nation with big oil ambitions. As the world's second largest producer of oil after Saudi Arabia, it has had a tumultuous relationship with the rest of the world concerning its oil resources. In September 2009, Russia publicly spurned OPEC by raising its output just as OPEC collectively decided to curb production. While it had previously enjoyed a positive relationship with OPEC, this action was a bit of a slap in the face to the cartel.
These current and past disputes have raised some doubts in Europe about Russia's dependability as an energy supplier. Although the disputes don't often directly affect European countries, which have large stockpiles of crude, the instability is definitely not good news for the world at large. The delivery cuts, or even the mere threat of them, often drives up heating oil and other energy prices.
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