How Belarusian oil imports change geopolitics in Eastern Europe
On 31 October, several years after imports of non-Russian oil into Belarus ceased, the first cargo train carrying Azerbaijani oil reached a refinery in the Belarusian city of Mazyr.
Although the Belarusian government has so far imported only a limited amount of alternative oil, Minsk has nevertheless demonstrated to other nations that this is possible. This has changed the geopolitics of the region forever.
Despite Moscow's opposition, Belarus is also trying to involve Ukraine and the Baltic states in its efforts at diversification. Nevertheless, on 10 November, the governments of Belarus and Ukraine discussed how to use modernised Belarusian refineries and Ukrainian ports for each other's interests during a meeting of the Belarus-Ukrainian commission on economic cooperation.
A reaction to reduced oil deliveries
Purchasing Azerbaijani oil involved significant logistical risks. Importing 84,700 tonnes of oil from faraway Azerbaijan to land-locked Belarus requires the use of tankers, Ukrainian ports, and railways. This leads one to question the profitability of such shipments. However, energy security is about more than just direct economic gains.
Belnaftakhim, a Belarusian oil vendor, commented that it is diversifying its sources of oil because Russia has reduced its oil deliveries, causing Belarusian refineries to work under capacity. Indeed, at first glance, importing Azerbaijani oil seems like another of Minsk's gambits in its quarrel with Moscow over oil deliveries. Yet the story behind these reductions is more ambiguous.
In the beginning of 2016, Minsk asked Moscow to lower its price for gas in light of the decline in energy prices worldwide. Moreover, Belarus started paying the price it believed to be fair ($73 rather than $132 per 1,000 cubic metres, as demanded by Gazprom), without Russia's consent. This led to a supposed Belarusian gas debt, which reached $220m by the end of May.
This unimpressive sum, however, triggered a harsh response from Moscow. Citing Belarus's gas debt, Russia reduced its oil deliveries to Minsk in the third quarter of the year to 3.5m tonnes. This dealt a serious blow to the Belarusian economy as export of oil products brings in many millions of dollars in foreign exchange revenues. Minsk responded by raising transit fees for Russian oil.
Moscow retorted by threatening to deliver just 3m tonnes in the fourth quarter. Then, on 10 October, Minsk promised to rescind its decision to raise transit rates for Russian oil and Moscow promised to return to earlier volumes of oil deliveries. Minsk also agreed to pay the gas debt Russia claims, i.e., more than $300m. But did Minsk capitulate or simply back down temporarily – until alternative oil arrives?
Revival of earlier plans
On 7 October, during an address to parliament, Belarusian president Lukashenka announced that Belarus was negotiating oil prices with Iran. He emphasised Iran's willingness to offer lower prices to Belarus. Minsk, on its part, was willing to let Tehran use Belarusian refineries to refine Iranian oil; Iran would then be able to sell the refined products wherever it wants.
Belarus has managed to import alternative, non-Russian oil once before. In 2010-2011, mostly via the port of Odessa, Belarus received almost 1.5 million tonnes of Venezuelan and Azerbaijani oil, including 156.3 thousand tonnes of Azerbaijani oil delivered through an oil swap scheme for Venezuelan oil. Whatever the direct gains, Minsk managed to secure better terms in its oil deals with Moscow using these alternative deliveries as leverage, claimed Vice Prime Minister Uladzimir Syamashka.
In the same speech in October, Lukashenka even implied that a tanker of Iranian oil was on its way to Odessa. However, upon arrival the tanker turned out to be Azerbaijani.
Minsk buying Iranian petroleum would be surprising for several reasons. First, despite the agreement on its nuclear programme, Iran remains a pariah state and Minsk does not want to antagonise the West. It is also possible that the US and its allies could stop any serious deal with Tehran – they prevented a Belarusian national oil company from working in Iran in 2011.
Second, Minsk has invested a lot of energy in developing relations with Iran's nemeses over the years. President Lukashenka recently visited the United Arab Emirates and Qatar, but not Iran. This policy excludes serious deals with Tehran.
Last but not least, Minsk had already attempted to import Azerbaijani oil, as the best alternative to Russian oil, in the early 2010s. This proved to be a difficult task. Azerbaijan -wary of provoking Russia - has traditionally focused on exporting to areas outside the domain of Russian gas and oil companies, preferring to work in the Balkans and Southern Europe. The oil deal with Baku thus became a major coup: using Venezuelan oil as a pretext, Minsk broke the tacit Russian ban on bringing Azerbaijani oil to Eastern Europe.
Regional cooperation on oil
In the early 2000s, Minsk apparently came to the conclusion that importing oil from non-Russian sources would only succeed if the project became regional. However, neither the Baltic states nor Ukraine joined Belarus in importing non-Russian oil.
Lukashenka announced that Belarus would resume construction of an oil pipeline to the Baltic Sea
Now, Minsk is not only resuming these imports but also plans to increase them and turn a profit. On 7 October, Lukashenka announced that Belarus would resume construction of an oil pipeline to the Baltic Sea and demanded the modernisation of the Navapolatsk oil refinery in the north of Belarus. This entails investing significant resources in diversifying energy sources through regional cooperation.
Moscow sees this as a threat. On 20 October, Russian Railways – a corporation with extremely close links to the Kremlin – offered a 25% discount to Belarus on the condition that it transport its oil products to the Baltic ports of Russia. Until now, Belarus has exported its oil products mostly from Latvian and Lithuanian ports. For instance, in January-July, the major Belarusian oil company BNK exported 60% of its oil products via Lithuania and Latvia, with the rest going through ports in Estonia and Ukraine. It did not rely on Russian ports at all.
Minsk gave no official reaction to Russia's proposed discount. However, circumstantial evidence indicates that it has hardly given up on its efforts to diversify. In the context of the Russian offer, the Lithuanian company Klaipedos Nafta signed a three-year agreement on shipment of fuel oil with BNK. Later, on 10 November, Ukraine's Vice Prime Minister Henadi Zubko announced that he had discussed in Kyiv how Ukraine can refine its oil at Belarusian enterprises and help export Belarusian products via Ukrainian ports.
Comparison with Ukrainian attempts to pull off a similar scheme helps to comprehend the immensity of Minsk's achievement. Since 1991, various Ukrainian governments have made almost a dozen attempts to bring in alternative, non-Russian oil from the Middle East and Caspian without any success. The Belarusian government managed this for two years in the early 2010s and is about to try again.
Nevertheless, diversification efforts such as these are only viable in the long run if other neighbouring countries cooperate. Such a regional project could change the whole geopolitics of Eastern Europe.