The Third Oil War

How Belarus and Russia led a war over oil.

Instead of the so-called in-depth integration, Minsk and Moscow began the year 2020 with regular oil maneuvers and without a supply contract. Since January 1, Russia has stopped supplying oil to the Belarusian refineries. This is not the first such case. Tut.by recalls how Minsk and Moscow acted in previous oil conflicts.

The first oil war, 2006-2007

The conflict of 2006 began in December 2006, when Moscow announced an increase in the price of natural gas from $ 46.7 per 1,000 cubic meters to $ 100. Head of the gas giant Alexei Miller warned the intractable Minsk that, in the absence of a contract, they will stop gas supply since January 1, 2007. Minsk refused to sign documents on the transit of the Russian gas to Europe, buyers started getting nervous, fearing interruptions. The contract was signed, as in 2019, in the late evening of December 31.

But the conflict remained unresolved, there was no agreement on oil supplies. Belneftekhim suspended contracts for oil supplies to Belarus concluded in 2007 with Russian companies for the supply of oil to Belarus due to the disadvantage of these purchases - since January 1, Russia introduced a customs duty of $ 180.7 per ton (before, oil was supplied duty free, but there was an agreement on the division of duties received by Minsk from the export of petroleum products, although there were no real transfers to the Russian budget). Belarusian Prime Minister Siarhei Sidorski reported to the Security Council that Minsk was unable to pay more than $ 400 per ton.

On January 3, the Minsk conflict gained momentum: Minsk hastily came up with a retaliatory strike and introduced a duty on oil transit through its territory, $ 45 per ton.

Russia was outraged by such a move and on January 8, Transneft stops the transit of raw materials to Europe after, according to its statement, Belarus illegally seized 79 thousand tons of oil to pay the same duty. On January 11, after a telephone conversation between Lukashenka and Putin, the transit was restored, the transit duty was canceled.

Russia also made concessions. Oil supplied to Belarus was subject to export duty with a decreasing coefficient; the Russian budget would receive $ 1 billion from deliveries to Belarus in 2007 instead of $ 3.6 billion for full payment of the duty.

The magic of “customs clearance”, 2016

Another oil and gas conflict between Belarus and Russia flared up in 2016. World energy prices were falling, the Russian ruble devalued noticeably, and the gas transit price in the formula by which Belarus paid was set in dollars. Minsk considered this unfair and calculated the “fair” price from its point of view - $ 73 per 1,000 cubic meters instead of the contracted $ 132.

The gas conflict had a side effect - oil problems. Russian Deputy Prime Minister Arkady Dvorkovich stated that Russia, due to underpayment for gas supplies, had decided to reduce oil supplies to Belarus. He also said that the settlement of the gas dispute between Russia and Belarus was possible in a judicial proceeding. As of February 2017, Minsk’s debt to Moscow for deliveries of the Russian gas reached $ 600 million. Belarusian refineries were underloaded, Minsk lost foreign exchange earnings from export of oil products.

In autumn 2016, the parties announced a compromise: the price of gas will remain the same, but Moscow will provide inter-budgetary compensation. In April 2017, the agreement was finally formalized.

First Deputy Prime Minister Uladzimir Siamashka reported that oil supplies to Belarus were resumed in the volumes approved by the current agreement (24 million tons per year). Such volumes are agreed until 2024 inclusive. At the same time, until 2018, inclusive of 18 million, 18 will be sent for refining at refineries. The term “customs clearance” was invented for 6 million tons. These volumes are not processed in Belarus, but duties from such a volume go to the budget of Belarus. This is 500-800 million dollars.

It is obvious to everyone that such solution is temporary. “The task is to finally come to the same or very close gas price for Belarus as the one that exists in Russia by January 1, 2025. At least in those Russian regions that border Belarus (Smolensk, Bryansk region), Veliky Novgorod, Moscow,” said the then First Deputy Prime Minister.

“In-depth integration”, 2020

The suspension of the Russian oil supplies to Belarus since January 1, 2020 is due to the fact that Moscow did not make concessions on a number of issues that were discussed in 2019 as part of the in-depth integration program.

Belarus wanted compensation for the tax maneuver that Russia carried out and thus increased the cost of oil for Belarus. But Moscow replied that this can be expected after the unification of the tax laws of the two countries.

The issue of compensation for dirty oil has not yet been resolved. Moscow is prepared to pay only for documented losses, and not for mythical lost profits. Minsk offered to increase the tariff for the transit of the Russian oil, and thus somehow solve the problem of dirty oil. But Moscow agreed to raise the transit tariff by the lowest possible percentage.

At the highest level, it seems, an agreement was reached that Belarus would not pay bonuses to the Russian oil companies for long-term contracts. This way, partial compensation will be received. But the parties failed to agree.

Since January 1, Russia has suspended oil supplies to Belarus. The day before, Aliaksandr Lukashenka and Vladimir Putin held talks on the phone several times. As a result, Lukashenka has instructed his “oil workers” to “make contracts for the supply of oil to the country in order to ensure the smooth operation of two oil refineries”, and to ensure the supply of oil from alternative sources in the coming days, by rail from ports in the Baltic region, and reverse through the Druzhba pipeline”.