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Belarus Cancels Oil Transit Tax; Druzhba Oil Deliveries Resumed

Published: 1/11/2007
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Belarus has announced that it is revoking the oil transit tax that it imposed on Russian crude oil exports last week, with signs pointing to a compromise deal to end the Russian-Belarussian oil dispute as oil shipments from Russia to Europe along the Druzhba pipeline are resumed.

Global Insight Perspective

 

Significance

Belarussian Prime Minister Sergei Sidorsky said that Belarus has cancelled the US$45/tonne tax on Russian oil transit via Belarussian territory, with an "in principle" resolution to the transit row apparently averting a threatened cut in oil output by Russia.

Implications

The cancellation of the oil transit tax has paved the way for a restart of Russian oil exports to Europe along the Druzhba pipeline via Belarus, although a final deal to resolve the customs dispute between Russia and Belarus is still pending.

Outlook

Belarus appears to have caved in on the transit tax under threat of further punitive economic attacks by Russia and in response to Russia's resolve in withholding oil supplies via the Druzhba pipeline, although until a final overall deal is agreed, uncertainty will prevail.

When Is a "Deal" Not Really a Deal?

With mounting pressure on Russia and Belarus to resolve their trade dispute and restart Russian oil shipments to Europe via the Druzhba pipeline across Belarus, the two sides yesterday reached a compromise deal—or did they? The press office of Belarussian President Alexander Lukashenka reported that "a compromise was found which enables us to resolve the current deadlock, including concerning the transit of Russian oil to European countries through the territory of the Republic of Belarus." A spokesperson for Belarussian Prime Minister Sergei Sidorsky also announced yesterday that Belarus had revoked a US$45/tonne oil transit tax that was imposed last week on Russian oil supplies in retaliation for Russia's imposition of a US$180/tonne export tariff on crude oil supplied to Belarus (see "Related Articles" below).

However, while the Kremlin (Russia's presidential administration)'s press office acknowledged that there had been a conversation between Lukashenka and Russian President Vladimir Putin, the official Russian statement on the matter stopped well short of announcing a deal had been reached. "In the course of the telephone conversation were discussed questions of co-operation between the Russian Federation and Belarus, amongst others in the field of energy, including the problems of transit for Russian oil through Belarussian territory," the Kremlin statement ran. Later, however, Sergei Grigoryev, deputy chief executive of Russian oil pipeline company Transneft, confirmed that Russian had restarted pumping oil through the Druzhba pipeline across Belarussian territory.

Meanwhile, the impact of the dispute continued to reverberate outside the two countries, with Ukrainian Fuel and Energy Minister Yuriy Boiko announcing a halt in oil exports from Ukraine's Pivdenny terminal, the Black Sea terminus of the Brody-Odessa pipeline, as a result of a lack of supplies flowing into the Ukrainian pipeline from the Druzhba. European governments stepped up their criticism of Russia, questioning the country's reliability as an energy supplier and accusing the Russian government of keeping them in the dark about the oil cut-off from the Druzhba pipeline, although Russian officials denied that accusation.

Outlook and Implications

Initially, the urgency of the resumption of oil supplies via the Druzhba pipeline, as well as the intense interest in the dispute between Belarus and Russia, appeared to create confusion over the Druzhba restart, with various Russian officials apparently not fully updated on rapidly changing events. Grigoryev himself had earlier told RIA Novosti that a resumption of oil supplies via the Druzhba had not begun because "We do not yet have an official document allowing resumption of pumping."

However, with Belarus confirming cancellation of the oil transit tax, supplies via the Druzhba pipeline now appear to have resumed. Both PERN and Gomeltransneft-Druzhba, the Polish and Belarussian pipeline operators, respectively, reported that oil transit from Belarus to Poland had restarted, even if a final deal between Russia and Belarus to resolve their dispute is still elusive. After Belarus played its trump card by siphoning oil supplies from the Druzhba, Russia not only called Belarus's bet by withholding oil supplies, but further upped the ante by indicating it could hold out by shutting in some oil production. Russia is also believed to have threatened Belarus with additional punitive economic measures in an attempt to get the other side to concede, which it finally did with yesterday's announcement of a cancellation on the oil transit tax.

Sidorsky is expected in the Russian capital, Moscow, for talks with his Russian counterpart, Mikhail Fradkov, in thrashing out the details of the reported compromise, with Lukashenka's press office stating that a package of measures are expected to be submitted for approval tomorrow. It is uncertain at this point whether Russia has made any concessions, be it on the oil export duty or the recently agreed gas deal, but the country is likely to come away the "victor" in final deal—at least on the economic front. Considering the hammering that it is continuing to suffer in the court of public opinion—not to mention the further corrosion of the country's reputation as a reliable energy supplier to Europe—Russia has already lost.

Related Articles

Europe: 10 January 2007: European Leaders Fire Up Over Russian Oil Cut

Belarus: 10 January 2007: Talks Fail to Produce Druzhba Pipeline Restart; Russia May Cut Oil Production

Belarus: 9 January 2007: "Friendship" in Name Only: Belarus Dispute Hits Russian Oil Exports to Europe

Belarus: 4 January 2007: Belarus Retaliates in Oil Export Tariff Dispute, Slaps New Duty on Russian Oil Transit

Belarus: 5 January 2007: Belarus, Russia Vow No Impact from Customs Dispute on Oil Exports to Europe

Belarus: 3 January 2007: Gas Price Hike Manageable, Russian Oil Export Duty Increase Not—Belarussian Official

CIS: 2 January 2007: Gazprom, Belarus Strike Last-Minute Gas Deal to Avoid Cut-Off

Russia: 13 December 2006: Russia Plans Tariff Hike on Crude Exports to Belarus Amidst Ongoing Energy Stand-Off

CIS: 26 October 2006: Oil Supplies to Belarus Could Be Cut Over Export Duty Dispute, Says Russian President

Belarus: 20 September 2006: Russia Seeks Revenues from Belarussian Export Duty on Oil Products

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