Economist About Oil: There’s a Crack in Lukashenka’s Position

The fate of the USSR awaits his system.

From January 1, Russia has suspended the oil supply to the Belarusian refineries. Belarusian refineries operate on oil reserves, which, according to Belneftekhim, are enough for 10 days of work. Minsk has stopped exporting oil products fearing fuel shortages in the domestic market.

What consequences can the conflict between the Kremlin and Minsk have for the Belarusian economy? How can Belarus escape oil addiction? Charter97.org asked the famous economist Leanid Zlotnikau for comments:

- Imagine you are friends with your neighbour. One day he offers you to pay for his heating or electricity at your income. What is your reaction? Would you like that?

- I don't think so.

- Russia used to agree and subsidize Belarus. To stay in power, now Putin needs to play "integration". We do not mean empire recovery. But such a step can help to maintain power. Putin offers Lukashenka to unite the economy. Imagine you pay your neighbour's bills and ask for his help, while the neighbour refuses. Would it hurt you?

- Yes.

- You paid for him, but he behaves the way you do not expect. I do not advocate the so-called integration, but one has to look at the situation from the point of the second party. I guess these demands of Belarus to support it are absurd. All these demands of Lukashenka to subsidize him look the same. On the one hand, he does not make concessions. On the other hand, he demands subsidies to be preserved. "We are the union, we are the EEU," and when it came to real actions, Lukashenka stepped aside.

There is a crack in Lukashenka's position. If you do not want to join this "union" - support yourself. This is the position. We can't support ourselves.

Regarding this oil, the domestic market needs seven million tons, if you want more - pay more. The conflict is that Belarus does not agree with the new oil price. The contract for 24 million tons of oil has already been agreed, but Russia did not supply the raw material just because the agreement was not renewed.

Imagine if two companies are negotiating and arguing about the price, and the contract is not signed. How can one ship anything? If the friendship doesn't work, then one has to practice business relations. You need oil, then sign a contract, pay and by 2025 we reach the world price.

It is under the world price now, but there is a "Semashka scheme" that smoothes out Russia's transition to taxes instead of oil duties. The Semashka scheme has been smoothing out the transition for three years and when it expired last year, there was a 600 million dollar drop. We failed to get what we used to. Oil is more expensive now and it causes the profitability decline among the refineries.

Now let's take a look at Lukashenka's position. Belarus was not independent economically in Soviet times. The BSSR was quite a prosperous republic, but not because there was anything profit-making here. There was mechanical engineering, and Russia had cheap raw materials.

In Soviet times the oil price was stable and the prices for Belarusian products - light industry, mechanical engineering - were fluctuating. Something new was released - the price was raised.

We supplied our products to Russia at the price two and a half times higher than the world price, while Russia supplied gas, oil, metals at the price two and a half times lower. During the Soviet times, we succeeded only because of the price system.

The Soviet Union collapsed, everyone traded at world prices and here Belarus failed to be economically independent. This "friendship with Russia" began. At first, Kebich said in his interview that "we can't survive without cheap raw materials from Russia". Then everyone tried to somehow communicate with Russia, with Chernomyrdin, with others. Lukashenka also agreed to the so-called union agreement not only for political reasons; he also wanted to keep cheap raw materials. This is how we have been living with cheap Russian energy resources since 1991. The question is what will happen to our economy if these subsidies run dry. It will be very bad. The debts on the BelNPP should be repaid starting next year, while Russian subsidies are declining. The situation is very stressful. Well, it's our fault. There were no reforms. If support suspends, the standard of living will fall by about 20%.

Other countries prove that we can live without subsidies. Japan, for example. They have nothing but rains. There are no natural resources, potassium, superphosphates, ore, oil, gas. However, they have high GDP per capita. All because they have a different economic system.

A populist opposing the market economy and private property won in Belarus. We followed the path of populism. After all, when Lukashenka came to power, he said that "if someone earns on inflated prices, we'll jail him". Prices equaled to labour and cost, not the market. The whole system turned into a non-market. It can't exist.

It's not even about oil. Venezuela lives in poverty. Although this is one of the world's oiliest countries. What do we have? It is populism. Chavez came to power and started building socialism of the 21st century.

Even if Russia gives us cheap oil, we will not live better. On the contrary, we have wasted much we have inherited from the USSR. The so-called modernization failed and caused great losses. It will still be a problem with oil or without it.

- How would you assess alternative oil supplies to Belarus?

- You know, no one will sell at a lower price. Even Chavez, although Lukashenka had hope that Venezuela would sell oil at a Russian price. Lukashenka has long disliked the Russian system. It is oligarchic, not populist. The friendship and relations with Venezuela ended as soon as the oil price reached the world level. There were attempts to set relations with Arabs, Iran, but our economic system cannot be effective at the world oil price. The world experience shows that the full control of the state is failing. It will end with poverty, revolts and change of power. One can already conclude when looking at this system.

I should also mention that if oil is sold at world prices, plus transshipment from sea to pipe, it will exceed the world price. Even if Russia sells oil at world prices, this option is better from the economic point of view, because there will be no such transshipment. Alternative supplies cause political unrest.

There will be no economic relief for the country.

- Won't gas blackmail be added to oil? After all, the contract between the parties is extended for two months only.

- You know, I am a marketeer after all. I see Belarus and Russia as independent countries. It means an agreement. If they do not sell us gas below the world price, we must not demand it. We should seek other ways as others do. Why does South Korea live without oil and gas and not complain? It consumes energy resources at world prices. We need a new economy and that will be the solution to our poverty. Not these "support me, my neighbour" demands.

We can live better than anyone. Many countries do not have their oil and gas, but they have a different system. Our system is inefficient. I've explained it thousands of times and I can play it on repeat. It's proven both in theory and in practice. We must put an end to populism.

After all, there are two systems of economy in the world - populist and market economy. If we switch to a market model instead of arguing, it is not Russia that will help us. The IMF is always ready to help us, the whole world will help us if we decide to build a new economy and new society, and integrate with the West.

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