Belarus threatens to suspend Russia's oil transit to Europe amid snowballing energy conflict with Moscow

Belarus threatens to suspend Russia's oil transit to Europe amid snowballing energy conflict with Moscow
"If you need to repair pipelines running through Belarus, do it," Lukashenko said on April 11, as Minsk turns the screws on Russia in a row over transit compensation
By Sergei Kuznetsov in Kyiv April 12, 2019

Belarusian authoritarian President Aleksandr Lukashenko has ordered his government to suspend Russia's oil transit to Europe saying the pipelines running through his country to Europe are “in need of repairs.”

"If you need to repair pipelines running through Belarus, do it," state news agency BELTA quoted Lukashenko as saying on April 11. "It seems that the good things we are doing for Russia turn into evil for us. Some people there have gone too far trying to twist our arms."

Russia’s state-owned gas monopolists said in a statement on the same day that the pipelines were in “good repair” but offered to aid Minsk in any repairs the Belarusians deemed necessary.

The Belarusian statement appeared against a background of Minsk's failure to secure any compensation from Russia for losses triggered by the latter’s new energy taxation system, which may lead to a new economic crisis in Belarus.

According to Lukashenko, 12-18 month ago Belarusian experts reported that both an oil pipeline and an oil product pipeline running through Belarus are in disrepair. "We needed to close those pipelines for a couple of days to repair them. But we did not do it. We understood that it would affect Russia. Back then I gave an instruction to work in an emergency mode without closing those pipelines meant for the transportation of oil, which is a major export product of the Russia."

"It's up to the engineers"

The same day, the nation's Deputy Prime Minister Igor Petrishenko told reporters that time the necessary repairs require is up to the engineers and technical specialists in charge of the oil pipeline's maintenance to decide.

"Depending on what parts and components need maintenance. [...] Specialists should arrange consultations so that the oil pipeline would work without damaging the nature in our country and all the contracted deliveries would be implemented," he said.

He added that the existing oil pipeline needs "additional routine maintenance" because it has been in use for a long time. "Our engineers and technical specialists have made certain conclusions saying the pipeline was supposed to be shut down for scheduled repairs 1.5 years ago."

"Now, due to considerations relating to ecology and green economy we see that we cannot perform maintenance on this pipeline without either shutting off certain parts or limiting their use. Our specialists and engineers are working on it. This matter was also on the agenda," Petrishenko added.

Russian and Kazakhstan use Belarusian part of the Druzhba (Friendship) oil pipeline for oil transit in Poland, Germany, Ukraine, Hungary, Slovakia, Czech Republic.

Moscow's tax manoeuvre

Russia’s tax manoeuvre in the oil industry envisages a gradual reduction in the rate of export duty on oil and petroleum products from 30% to zero in the period from 2019 to 2024 and a proportionate increase in mineral extraction tax on oil production.

According to the Belarusian finance ministry, the country’s budget revenue losses from the tax manoeuvre in 2019 alone were estimated at BYN600mn ($300mn), and that the losses might total $2bn by the end of 2024.

However, in December, a spokesperson with Belarusian President Alexander Lukashenko said in a televised interview that Minsk already lost $3.6bn due to Russia's cut of energy subsidies to Belarus. Belarus could lose another $11bn within the next four years.

Looming crisis

Last week, the World Bank has revised downward its forecasts for the economic growth in Belarus in 2019-2021 amid growing worries about possible crisis if Minsk fails to secure full compensation from Russia for losses triggered by the latter’s new energy taxation system.

The multinational lender has revised the growth from 2.7% year-on-year to 2.2% y/y in 2019, from 2.5% y/y to 2.4% y/y in 2020 as well as from 2.5% y/y to 2.1% y/y in 2020, according to its Europe and Central Asian Economic Update published on April 5.

The World Bank said that the country's economic growth will depend on the results of Minsk's talks with Russia on compensation for the latter’s so-called tax manoeuvre in the oil sector. Without any compensation from Moscow, the economic growth would decelerate to below 2%, while under the worst-case scenario the country faces recession.

The Belarusian economy grew by 0.8% year-on-year in January and February following 0.7% y/y growth in January, according to national statistics agency Belstat. Belarus' GDP grew by 3% y/y in 2018 after a 2.4% y/y expansion in 2017 after two years of recession. It contracted 3.9% y/y in 2015 following 1.6% y/y of growth in 2014.

In January, the International Monetary Fund (IMF) said that Belarus faces a new economic crisis if Minsk fails to secure full compensation from Russia and told Minsk it had better prepare a “plan B” in case there was no money forthcoming.

According to the IMF, medium-term growth in Belarus is projected at 2%, limiting convergence towards the income levels of richer neighbouring countries, according to the multinational lender. However, this modest outlook is "conditional" on full compensation from Russia.

"Should compensation be significantly less than full - and this is the key risk hovering over the Belarusian economy at this stage - medium-term growth could be materially lower than 2%, and the budget and current account deficits higher than projected above," the IMF said in its statement.

 

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