Belarus, Russia: Minsk Bows to Moscow


Russian President Vladimir Putin said Oct. 25 in his annual teleconference that Russia might restrict deliveries of crude oil to Belarusian refineries if Minsk and Moscow fail to reach an agreement on customs duties. Belarus responded by offering either a share of the customs revenues or the privatization of a state-owned oil refinery, the country's largest (in effect handing it over to the Russians). The two countries are negotiating the terms of their union state, and the latest exchange indicates how it will shape up, assuming things move forward -- with Belarus succumbing to Russian rule.


During his Oct. 25 teleconference with his citizens, Russian President Vladimir Putin said Russia could restrict crude exports to Belarus if the two countries fail to reach an agreement on customs duties. Belarusian officials quickly responded in a conciliatory tone, paving the way for Russia to gain more control over its neighbor's assets.

Under the customs union agreement between the two countries, no duties are paid on crude exported from Russia to Belarus. Russian oil companies such as LUKoil, Slavneft and Surgutneftegaz have taken advantage of those terms by exporting crude to Belarus, refining there and then exporting abroad at low Belarusian tariffs. The Kremlin is unhappy that the Russian economy receives no benefit from this arrangement.

The Belarusians have offered one of two options to appease their neighbor. One is to hand over 85 percent of the Belarusian export tariff revenues to Russia and to bring those fees more in line with Russia's tariffs. The other -- suggested by Belarusian Economic Minister Nikolai Zaichenko -- is the privatization and sale of a controlling share of the Naftan refinery, the largest in Belarus. Naftan processes 66 million barrels of crude annually and Russian oil companies -- such as the state-controlled Rosneft and Gazpromneft as well as the private LUKoil -- are said to be interested in the asset.

Along with Putin's announcement, the Russian oil transport monopoly Transneft stated Oct.12 that it could cut exports along the Belarus branch of the Druzhba pipeline by as much as 30 percent this quarter. Belarus and Russia are also currently negotiating prices for natural gas delivery. The Russian natural gas monopoly Gazprom has posed the price of $200 per 1,000 cubic meters, a much larger increase from the current $46.68 than Minsk expected. However, Gazprom has indicated a willingness to accept some assets in trade. Naftan -- as well as Belarus' natural gas distribution network -- could become part of the bargain.

The latest example of Russo-Belarusian interaction indicates the shape their proposed union would take. The union -- over which Putin could preside in order to escape term limits -- is far from a reality, as the leaders' relationship is strained and the unification would require a significant investment, which would land mostly on Russia's reluctant shoulders. The two nations are still struggling to implement a common currency, a necessary step toward the economic consolidation that would precede the complete union. However, the underlying factor is this: Belarus relies heavily on Russian subsidies and subsidized products, and Belarusian President Aleksandr Lukashenko knows who is keeping his economy afloat. Lukashenko has isolated his country, and he deals with a few partners who are close to him in ideology, but no Cuba, Venezuela or Iran does -- or could do -- as much for his state as Russia.

As much as Lukashenko wants to be independent of Putin (and as much as Putin wishes he did not have to deal with the asinine Lukashenko), the Belarusian leader knows he will not be infinitely indulged. No longer will Minsk receive cheap natural gas, nor be able to make an easy profit from Russian petroleum exports. If this union ever becomes a reality, it will not be under Lukashenko's terms.

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