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Russia and Belarus will find a compromise but not the one Lukashenko wants

In Q1 2017, Russia and Belarus will try to find a way-out of their last year’s oil and gas conflict. They are likely to consider some mutual concessions as neither of them would like to see their contacts broken, a group of energy experts have told EADaily.

According to senior expert at the National Energy Security Fund Stanislav Mitrakhovich, in this conflict, oil is a weapon the sides are using to pressure one another.

“As you may know, Belarusian President Alexander Lukashenko wants Gazprom to charge his country the price it charges the neighboring Russian regions, for example, Smolensk. In Smolensk, people pay just $70 per 1,000 c m. This a very low price. The price Belarus pays to Gazprom is also low but the Belarusians want it to be even lower and are trying to pressure the Russians in the oil sector. They are currently looking for alternatives to Russian oil, while the Russians have cut their oil supplies to Belarus. This is a big problem for the Belarusians as they earn a lot of money by refining Russian oil and sell the products to Europe,” Mitrakhovich said.

The cut in Russian oil supplies to Belarus is the Russians’ counterstrike. “They are trying to bring the Belarusians back to senses as Lukashenko not just wants the price to be lower but refuses to pay his $400mn gas debt. Last year, the sides agreed on an inter-budget compensation for Belarus. It is supposed to be bigger than the debt. But this agreement has not been put into practice and the sides continue to argue,” Mitrakhovich said.

“Today, Lukashenko is looking for alternatives to Russian oil. He says that he will find oil in other regions and even in his own country. As a result, some people began rumoring about huge oil resources in Belarus. But in reality Belarus has just small oil zones. Lukashenko says he will find oil in Iran but there are no guarantees that Iranian oil will be cheaper. A few years ago, Lukashenko also had a dispute with Russia and was going to buy oil from Venezuela. Later, he found out that Russian oil was cheaper and was forced to accept Russia’s terms,” Mitrakhovich said.

He expects a similar ending now. “Lukashenko will find out that he is unable to get a cheaper alternative to Russian oil and will be forced to acknowledge the debt. Russia may offer a discount. I think the sides will find some compromise but it will not be the ne Lukashenko is looking for,” Mitrakhovich said.

“Here we should keep in mind the politics. Lukashenko is blackmailing Russia and oil is not the only weapon here. The Belarusian president is warning that it may turn his face towards the West. But with Trump already in power in the United States and Francoise Fillon likely to win in France, Lukashenko may have problems with this card,” Mitrakhovich said.

Sergey Agibalov, Head of Sector at Economic Department of the Institute for Energy and Finance, does not think that the Russian-Belarusian talks are in a stalemate. “I think the cut in Russian oil supplies was a good decision. Until now we have been too soft on Belarus. Now hopefully logic will prevail and we will start building normal economic relations - because the Belarusians want too many concessions from us, don’t they?” Agibalov said.

He expects the sides to come to terms. “The Russians will provide subsidies but this time they will be smaller,” he said.

Head of the Analytical Department of the National Energy Security Fund Alexander Pasechnik sees no progress in the Russian-Belarusian oil and gas talks. “I see no signs of progress yet. On the contrary, both sides are becoming increasingly tougher. Russia has cut its oil supplies to Belarus so as to force it to repay its gas debts, while Belarus is going to raise the transit tariff for Russian oil. In hope that in the first three months of this year the sides will try to solve these problems,” Pasechnik said.

He hopes that the sides will come to terms. “The Belarusians will only lose if they stop their contacts with the Russians and try to find alternative oil suppliers. The projects to import oil from Venezuela and Azerbaijan were pilot projects and both proved to be ineffective. Russian oil has no alternatives for Belarusian oil refineries and oil refining is one of the pillars of the Belarusian economy,” Pasechnik said.

As EADaily reported earlier, on Jan 13, 2017, Russia announced that it would supply only 4 million tons of oil in Q1 2017. In response, Belarus has decided to raise the tariff for the transit of Russia oil to Europe.

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