Economist: Gasoline Prices May Start Growing At Frantic Pace

How the “dirty” oil from the Russian Federation will affect the economy of Belarus.

The dispute over low-quality oil flowing into Belarus via Druzhba began on April 19. Then Belneftekhim reported that the Russian oil contains organochlorine compounds that are dozens of times higher than the limit values. Later, several countries, including Germany, Poland and Ukraine, suspended deliveries of crude oil from Russia through Belarus via the Druzhba pipeline.

On April 22, expensive equipment failed at the Mazyr Oil Refinery due to poor quality oil. At the same time, Belarus was forced to sharply reduce the supply of light oil products to third countries. As a result, Belneftekhim notified the Russian side of the incurred losses of $ 100 million.

What conclusions can be drawn from yet another oil scandal between Belarus and Russia and how will this affect the price of oil products for our citizens?

Barys Zhaliba, Doctor of Economics, answers these questions at Charter97.org:

- The dirty oil in Druzhba has become a global problem. It affected not only Belarus, but also Poland, the EU, Ukraine and other countries that received a Trojan horse from the Russian Federation through the Druzhba pipeline. And first of all, this is a serious problem for Russia itself.

According to the open information, the oil producers in the area of Russian Tatarstan are guilty, as they mixed organochlorine compounds in order to increase oil production by artificial means.

The fact is that the Russian Federation decided to use chlorine-containing compounds to “stimulate” oil recovery, and after the introduction of sanctions against the Russian oil industry, the process became more widespread. As a result, organochlorine compounds broke into the selective wells and entered the pipe leading to Belarus.

Therefore, Russia will now solve a more global problem than simply supplying a batch of dirty oil to Belarusian refineries.

This incident once again became a vivid illustration of the one-sidedness of the Belarusian economic policy. If we had arranged for the delivery of oil from other sources in time, we could easily cut off the access of dirty oil from the Russian Federation, save equipment at the Mazyr Oil Refinery and prevent such financial losses.

-Why hasn’t the diversification of oil supplies been carried out , and Belarus is still on the Russian oil needle?

- The story of the issue is as follows. At one time, the supplies were established through the ports of Ukraine, which went through the Odesa-Brody pipeline to Mazyr.

On the other hand, there were some receipts from the north, from the Baltic ports. There the pipe has not been working for a long time, and the oil was delivered to Navapolatsk by railway.

- Why haven’t these alternative ways become basic?

- This is the question of the cost of logistics: oil turned out very expensive. The most expensive option turned out to be the delivery of Venezuelan oil by tankers across the ocean.

The deliveries of Azerbaijani oil through the Odesa-Brody pipeline also failed. Azerbaijani oil was supposed to replace batches of oil from Latin America; a contract was even signed, according to which much larger volumes of oil should be pumped through this pipe than was actually done. The Azerbaijani side accused Belarus of underpaying and disrupting the terms of the contract. And the reason was that the Azerbaijani oil also turned out to be much more expensive for us than the Russian one.

- Why then does the whole world buy oil from different countries at the Petroleum Exchange, deliver it by tankers, and it turns out profitable? Only we stick to the Russian pipe…

- The reason is in our refineries. They should be able to work with no problems on any raw material, from anywhere in the world, bought at the current price on the free market, and not as a result of government negotiations. Otherwise, we will always be in a one-sided relationship and risk, if another “bomb” in the form of low-quality oil floats through the pipe from the Russian Federation.

Belarusian refineries need to get away from these greenhouse conditions of supply from Russia. Moreover, the Russian oil will become so much more expensive anyway, because of the tax maneuver. Refineries must be reconstructed - in order to have a lower cost of refining and buy raw materials from different suppliers.

So do all the plants in all countries of the world. No one is as dependent on suppliers and logistics as we are. Look: does the Japanese buy oil only in the Russian pipe? No, they take it where they want, sometimes even in the middle of nowhere. For example, Arab oil is bought and transported by tankers thousands of kilometers around Asia. This is beneficial only because their plants are working on modern technologies and have a lower cost of oil refining.

- What will happen with the prices for gasoline in Belarusm, given that they are already growing by 1 kapeyka every weekend, and Belneftekhim claims serious financial losses?

- I am afraid that Belarusians will have to get used to the thought that gasoline prices in our country will be European. At the same time, salaries, of course, will not become European.

The government proceeds from logic: we have some of the lowest prices in the region for motor fuel, and if a person bought a car, then they can pay for more expensive gasoline. Therefore, prices at gas stations will only grow.

- At which figure will this growth stop?

- I think that the price for gasoline will soon be like in Europe - about 1 euro per liter. After all, drivers go to the EU - I think they should study the price tags at gas stations there, because exactly such things might appear in Belarus. After all, you will not find gasoline for a dollar per liter there . And our prices will tend to such indicators. It is only a matter of time.

I do not even rule out the option that prices will be approaching the euro per liter at a frantic pace. It depends on how tough the position of the Belarusian refineries will be. They already declare that they can no longer work at a loss. And the situation with dirty Russian oil gives them an argument: the modernization of equipment for working with raw materials should be carried out as soon as possible, it is impossible to work further at a loss or with a low margin. It is necessary to diversify the supply of oil, because the situation has become critical - this is how the position of the board of the refinery may sound. And the government will now find harder to persuade them to a price increase for 1 kapeyka.

The problem lies elsewhere: fuel prices will rise for legal entities. What are legal entities? This is production, this is transport - all this will start working on more expensive fuel and the cost of production in Belarus will grow. And this, in turn, will automatically increase, “accelerate” inflation. So we get a bunch of economic problems - much more serious for the population than just the rise in price of gasoline at gas stations.

- Belarus is already in a state of protracted energy dispute with the Russian Federation, caused by the completion of the tax maneuver of the neighbor. Will the dirty oil scandal affect the negotiating positions of the two countries?

- Yes, the dirty Russian oil has complicated this negotiation process. But this is only an episode. The acuteness of the situation lies in the fact that we need to move away from energy dependence on Russia as soon as possible.

This should be done as quickly and decisively, as Ukraine did in its time. And nothing happened. The country did it, and continues to develop. If Ukraine could - it means we can do it, too. This is how we should look at the situation with the Russian oil. And move, following the example of Ukraine, towards Europe.

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