Russia-Belarus oil row marked by tough talk, no winners

By Stefan Korshak Jan 9, 2007, 16:31 GMT

Moscow/Minsk - The ongoing Russian-Belarusian oil row - the pricing dispute behind a dramatic cut in crude shipments to an energy-hungry Europe - is a trade war neither side can win, but ending it won't be easy, regional energy experts said Tuesday.

The conflict technically began on January 1 with a pair of simultaneous price hikes: a 180-dollar-per ton Russian increase to the cost of oil sold to Belarus, and a 45-dollar-per ton increase in the cost of shipping a ton of Russian oil to Europe via Belarusian pipelines.

Both sides accuse each other of starting the price war. Oil deliveries to six European states including Germany via the trans- Belarus Druzhba pipeline, have dropped substantially. The spot price of oil worldwide has pipped upwards between 1 and 2 per cent.

Industry experts identified intense politicization of terms for Russian energy supplies to Belarus, with prices and terms determined not by the market, but by posturing and brinksmanship, as one of the biggest barriers to a quick resolution to the conflict.

Aleksander Lukashenko, Belarus' authoritarian president, offered a fine example of the genre during a speech televised on the state-run Bel-1 channel, during which he declared 'Belarus has a strategic location, this is our trump card, and we will play it to the hilt.'

'They (Russia) are just as dependant on us, as we are on them,' a defiant Lukashenko insisted.

Russia's steely-eyed President Vladimir Putin, fired back on Tuesday, telling a group of friendly Moscow reporters, 'No country in the world buys Russian gas as cheaply as Belarus. I would hope that our Belarusian colleagues take into account the efforts of Russia to support the Belarusian economy.'

Sales of Russian energy to Belarus at 'less than full market price' reduce energy profits to Russia by between two and three billion dollars a year, Putin calculated, dead-pan, to state-run ORT television cameras.

'When national leaders negotiate by polemic, it is hard to have a normal economic relationship,' said Leonid Zaiko, director of the Strategia Analytical Centre, Minsk. 'This is the result when politicians try and set prices?and why talks (between Russia and Belarus on oil) could be long and painful.'

With the 'oil blockade' less than three days old, already Russia has accused Belarus of siphoning tens of thousands of tons of oil from the line. The Belarusians, unimpressed, have countered they are accepting the oil as payment for transporting oil to Europe.

Oil pumped into the Belarusian section of Druzhba, was for Europe not Belarus, the Russians have retorted. Minsk not Moscow decides what happens to oil in a Belarusian pipeline, the Belarusians have shot back.

The underlying cause of all the finger-pointing, area experts agreed, is a decision by Putin to play Russia's energy card to the hilt, and to spare no neighbour in maximizing Russian energy profits. According to some regional specialists, that means hard times ahead for Belarus.

'Russia could easily stipulate control of the Belarusian pipeline network as a main condition or impose duties on Belarusian exports to Russia,' said Yaroslav Romanchiuk, chairman of the Mizes Research Centre, in Minsk. 'The Belarus counters are limited.'

Other regional experts have predicted a possibly bigger hit to the Russian economy, as it has much more to lose than destitute Belarus.

'It's a stalemate situation now,' said Artem Konchin, of Moscow- based investment bank Aton Capital. '(If Belarus manages to make its tariff stick) Russian oil producers will bear the brunt of the price rise. Their margins will take a 6-dollar-per-barrel hit. Russian shipments in the pipeline will cease, but they can't be redirected. That would take 200 large-capacity tankers.'

Experts agreed that the key question was whether Lukashenko and Putin would be able to put their respective countries' economic interests, ahead of the tough talk that led to the conflict.

'In an oil war, every one will lose,' Romanchiuk said. 'But to end the war, you have to talk seriously.'