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Russian Oil Monopoly over Belarus Persists in Bilateral Trade Agreements

Long-time trading partners, Russia and Belarus, have recently revised a standing bilateral trade agreement concerning Russian exportation of crude oil and oil products to Belarus. Trade in oil has served as a foundational feature of relations between Russia and Belarus for years, and amendments to the existing oil trade provisions have become a regular point of leverage for Russia to maintain Belarus within the sphere of influence of the near abroad. As of 2017, Russia serves as the number one supplier of oil to Belarus, supplying 100% of Belarus’ natural gas and 90% of its crude oil. Disruptions in the specially positioned subsidies and favorable terms of trade that Belarus receives from Russia hold the potential to have dramatic reverberations within the Belarusian economy, and can generate underlying political tension in the region.

Earlier in August, discussions surrounding the bilateral agreement suggested plausible Russian supply restrictions on duty-free petroleum products and liquified gas to Belarus. However, at the time Belarus’ President Alexander Lukashenko denied such remarks stating that Russia intended to follow-through on its bilateral commitments to continue to provide the stated supply parameters. Recent developments now suggest otherwise. On Oct. 10, 2018, Russian and Belarusian officials reportedly met to once again amend the terms of oil trade across the countries. Previous amendments have most recently been implemented in 2015 and 2017.

Belarusian President Alexander Lukashenko and Russian President Vladimir Putin. Photo;    Credit: Alexei Nikolsky, REUTERS

Belarusian President Alexander Lukashenko and Russian President Vladimir Putin. Photo; Credit: Alexei Nikolsky, REUTERS

The latest resulting agreement between Russia and Belarus now appears to stipulate that Russia will contract its oil supplies to Belarus in the latter part of 2018. Purportedly, Belarus-bound export restrictions will encompass tightening Russian supplies of light and heavy oil products, as well as liquified petroleum gas. Exceptions to the proposed constrictions are reported to be Russian exports of which Belarus has no domestic supply, including some oil products used in Belarusian petrochemical production alongside supplies of crude oil. In a seeming effort to counterbalance the projected cutbacks on Russian flows into Belarus, Russia also reportedly gave a payment of $263 million to Belarus as a component of the countries’ bilateral agreement. Clarifications on the exact amounts transferred, and the product specific restraints to be put in place, are forthcoming from official government sources.

The long-running implications of these seeming diplomatic formalities manifest in the political and economic dynamics of the region. Since its exit from the former Soviet Union, Belarus has been kept under the thumb of Russian influence by the dominant position Russia holds over nearly 25% of Belarusian export-revenues. The Belarusian economy relies significantly on income from Russian export levies and the resale prospect of Russian energy and petrochemical products to Europe, generating a substantial source of hard currency for Belarus. Moreover, Belarus profits from a convenient position afforded by the bilateral agreements in that it receives  heavy discounts on energy imports amounting to billions of dollars each year from Russia.

Yamal-Europe Pipeline running through Belarus and controlled by Russian Gazprom. Photo;    Credit: Gazprom

Yamal-Europe Pipeline running through Belarus and controlled by Russian Gazprom. Photo; Credit: Gazprom

However, these benefits do not come without cost or stipulation. In return for favorable economic relations, Russia expects loyalty and regional subjugation from its Belarusian trading partner. Russia holds Belarus to remain allied with the actions of the Russian state, through recognition of Russia’s annexation of Crimea, concession to the establishment of Russian military bases on Belarusian territory, and distanced integration with the West. Interestingly, these political persuasions have had limited success under the presidency of Lukashenko, with relative Belarusian pushback and closer alignment towards the West. In attempts to consolidate control, Russia exploits its regional economic position. Russian company, Gazprom, monopolizes control over the Yamal-Europe gas line that runs through Belarus to Western Europe, and Russia has circumvented potential Belarusian state control leverage over the major Druzhba oil pipeline by developing the Baltic Pipeline System.

Russia’s predominance over a large portion of the Belarusian economy posits the country to be a compelling figure in the future of Belarusian affairs. As of now, the detailed terms of the new bilateral agreement are imminent. However, it remains clear that Russia will continue to use its position of regional clout to maintain control both politically and economically over Belarus.