Belarus Breaks Russia’s Energy Monopoly in Eastern Europe

The massive PR campaign against Lukashenka was launched by Moscow for good reasons. Lukashenka not only repeatedly denied Russian businesses access to some Belarusian state-owned enterprises, which Lukashenka treats as his own. More importantly – Lukashenka threatens the fundamentals of the Russian might and power in Europe – its energy supply monopoly.

On November, 18, oil pumping for Belarus began in Ukrainian Odessa. It means that efforts to supply Belarus with oil from new non-Russian sources reached a new and more advanced stage. Though technically this oil has still Russian origin, effectively it is a swap oil which could be bought thanks to a new arrangement with Venezuela.

Shipments of Venezuelan oil started at the beginning of this year. However, Belarus as a landlocked country faced obstacles in getting crude oil from the Baltic and Black seas to its refineries. Rail transportation evidently was not the best option. This month, after negotiations with Ukraine, Belarusian leadership managed to get Ukrainian pipeline Odessa-Brody for oil transit. The transportation costs will be lower and the shipment volumes will rise, which will result in lowering costs due to the economy of scale.

Is It Serious?

This transit breakthrough means that the Russian monopoly is no loner unshakable. Today the propaganda war waged by Russian oil interest groups depicts the whole Belarus-Venezuelan oil cooperation as a ridiculous adventure by two buddies – presidents Lukashenka of Belarus and Chavez of Venezuela. Among many contras the lack of real interest on Venezuelan side and lack of economic feasibility for Belarus were most frequently mentioned.

However, there are clear reasons why Caracas sends oil for Belarus. It is interested in diversifying its oil markets and avoid dependency on North American market – rather logical act given volatility and even hostility in relations between US and Venezuela. But diversifying in oil markets is not an easy task at all, if not even dangerous. A good example for that could be pre-revolutionary Iran when such attempts resulted in turmoils both under Mossadegh and Shah.

Secondly, Venezuela needs modernization. Belarus as a model republic for Soviet forced and brutal nonetheless effective modernization serves as a source of specialists and technologies, and is eager to help for some oil in exchange. In addition, Minsk is willing to help Chavez in military modernization as well – after all, Belarusian army is regarded as rather efficient example for modernization of Soviet military.

As for supposed Belarusian losses in deals with Venezuelan oil, it is worth reminding that as so often in quite secretive oil business, not all the data necessary to estimate profits and losses are available. Furthermore, it is merely too early to talk about it, since with shipments rising, the efficiency will increase too. And Belarusian pay for South American oil anyway not only with money but at least partly with services and goods. Venezuela itself is interested first of all not in Belarusian money but in reprocessing its oil on Belarusian refineries – technically the most sophisticated facilities in the region – in order to sell oil products afterwards outside of Belarus and share profits with Minsk.

The new move by the Belarusian government to establish the transportation system for non-Russian oil can improve the prospects not only of the pipeline Odessa-Brody, but also many other pieces of former Soviet pipelines in Eastern Europe. Over the last years, Russia tried to avoid transit troubles with countries like Belarus and Ukraine by switching off partly or completely many pipelines in the region between Baltic and Black Sea, and is actively working on constructing new pipelines which should deliver oil and gas to Central and Western Europe, as well as Balkans, while bypassing traditional transit countries, like Belarus, Ukraine or Poland.

Nevertheless, what was a problem, can become a new opportunity, since idle pipelines let post-Soviet countries to more easily break Russian monopoly on oil and, possibly, gas in the Eastern Europe. While shipments of Venezuelan oil may be insufficient for the region, projects to bring Iranian oil developed by Minsk under current political conditions will surely be blocked by the United States. However, it will remain as a very attractive opportunuity for the future.

Iraqi Oil Crushing Russian Influence

Hardly anyone remembers, but the pipeline Odessa-Brody at the very beginning has been conceived and projected for transporting Iraqi oil in particular from Iraqi Kurdistan. Then, however, sanctions were imposed on Saddam’s regime in Baghdad. The pipeline has been saved by newly explored Caspian Sea oil deposits, and pipeline was built to use them. However, Caspian oil deposits had been overestimated and pipeline even did not get further continuation westward from Brody. For a while it was out-of-use, later the Russians used it to pump oil in opposite direction. Now it is finally used for initial aim to break out of energy captivity. For a moment through Venezuelan oil.

Yet it can be complemented with the same Caspian oil, which alone did not suffice but the export volume of which may perfectly enough to fill the pipeline when combined with shipments from other sources. A propos, on November, 19, Lukashenka discussed possible buying Azerbaijani oil with the president of the State Oil Company of Azerbaijan Rounagh Abdullayev.

But the most important option is Middle Eastern oil, first of all Iraqi one. Technically, no obstacle stays in the way of getting that oil to Eastern Europe, because there is already rather developed network from Iraqi Kirkuk to Turkish coast. It currently lacks the access to Black Sea coast, yet there are projects to construct such pipeline (e.g. route Ceyhan-Samsun). Such plans were discussed in Ukraine in 1990s and again in early 2000s after American occupation of Iraq. The last time the issue was publically raised by the government of Viktor Yanukovych was in summer 2007. Then it caused a wave of concern and critisism in Russian media.

Whoever brings Iraqi oil to the pipeline Odessa-Brody, will ensure easy and rather cheap access to Iraqi and Middle Eastern oil not only for Belarus, but for the Eastern and Central Europe. And it will put an end to Russian energy monopoly in the region, resulting to collapse of its influence in the region, given the tight link between Russian foreign policy and energy exports. Russian Siberian oil has absolutely no chance against Middle Eastern oil in cost and quality terms. Moscow presumably will do anything it can to stop it coming to the Europe.

Therefore, the whole enterprise can be implemented only by joint efforts of some countries. It is highly unlikely that Belarus and Ukraine can do it on their own. But with the engagement of the EU, the Middle Eastern oil can soon become a very feasible option for Eastern Europe energy supply.

And Lukashenka can be at the center of the new consortium. As Dzyanis Melyantsou of the Belarusian Institute for Strategic Studies noted recently:

Presently, we see the same situation of the year 2008, when under the impact of the international political circumstances the European Union decided to unfreeze its relations with Minsk, despite its failure to comply with the previous EU demands. The EU now essentially got addicted to the engagement policy (not Lukashenka got addicted but the EU) and it is difficult for him to renounce it… it is absolutely probable next year to expect Belarus-EU negotiations on economic integration with the EU. With Lukashenka as the main negotiator.

These developments and probabilities give political economy and geopolitical calculations of future Belarusian presidential elections new greater dimension. After all, the question is not only who will run the country. The question is, whether the Eastern Europe is possible without the tight grip of Moscow.


Venezuela’s Oil May Help Belarus Make Friends

This year Europe will purchase its first oil products from Venezuelan crude refined in Belarusian Mozyr. While Belarusian citizens have a hard time obtaining visas and traveling, Belarusian oil products traverse borders freely and are welcome in the EU regardless of the state of Belarus’ civil society or its human rights situation. The Belarus-Venezuela project, whatever its economic feasibility, may help Minsk get on better terms with its immediate neighbors (perhaps with the exception of Russia) and decrease its reliance on Moscow.

In fact, precisely because the route for delivering Venezuelan oil is so long and tortuous, Belarus is forced to cooperate with Ukraine, Lithuania, Latvia, and other countries on delivering it. The first 80,000-ton "trial" crude was shipped via Ukraine's Odessa port and then by the rail to the Mozyr refinery. Other transporting possibilities include utilizing Ukraine's Odessa-Brody pipeline or Lithuanian (Klaipeda), Latvian (Ventspils) or Polish (Gdansk) ports.

While the logistical and financial aspects of the project are being criticized – especially in the Russian press, – and its profitability and efficiency indeed warrant caution, the project may bring Belarus closer to its neighbors that already offer assistance. For example, Lithuanian Prime Minister said that the project of transiting Venezuelan oil through Lithuania was “doable” and that Vilnius could even offer Minsk a discounted tariff rate. Similarly, Ukrainian Prime Minister said that the Venezualan oil project could lead to the “mutually beneficial agreements” between Minsk and Kiev and that Ukraine could provide Minsk with transportation discounts.

The first oil was produced by the JV Petrolera, and another JV will be set up to supervise the sales, with Minsk having a 25 percent stake in the venture. Alyaksandr Lukashenka and Hugo Chavez plan to invest at least $8 billion into developing the oil fields by 2025 and are also considering cooperating in the gas industry

With the terms of Russian oil deliveries to Belarus changing this year, importing oil from outside Russia becomes more economically feasible despite the distance. Moreover, oil tanker shipments cover vast distances on a daily basis, and states like China, India and Japan all buy Venezuelan oil.

Venezuela's heavy oil of the so-called Santa Barbara blend can produce 20 percent more gasoline, kerosene, or diesel fuel than Russian blends and is in high demand in the EU. Because this type of oil requires rather specific processing technologies, Belarus’ expertise and its products will be welcome in the European markets.

Belarus could import up to 4 million tons of Venezuelan crude, one fifth of what it imports from Russia, diversifying and securing its energy supplies. Minsk is also cooperating with Iran and looking into obtaining oil from Kazakhstan and Azerbaijan.


Leaders of Belarus and Ukraine Discuss Their Relationship with the EU

Looking for subtext in yesterday’s meeting between Ukrainian President Viktor Yanukovych and Belarusian President Alyaksandr Lukashenka in Minsk is all the more tempting because Lukashenka had urged not to look for one. Among other things, the two leaders discussed steps Belarus has to take to join the Council of Europe and the need for opening European markets. Yanukovich said Ukraine was “more advanced” with respect to dealing with Europe. He said Ukraine’s “experience will be interesting for Belarus” and hinted at a “new opportunity” resulting from Ukraine’s chairmanship of the Council of Europe.

Thus, it is especially interesting to speculate how Belarus’ relations with Ukraine affect its relations with the European Union (EU). Of course, the degree of Ukraine’s influence on Belarus-EU dialogue depends, first and foremost, on the rapport between Minsk and Kiev. According to Lukashenka, whose policies have endangered the former many times, there’s no need to worry about the latter. “Someone gets all tense about our relations. We are not going to be friends against someone. Belarus is not going to get involved into geopolitical problems. It is not in our interests and I think not in Ukraine’s,” Lukashenka said. Likewise, Yanukovych, an ethnic Belarusian himself, said the policies of Belarus and Ukraine toward each other will continue be “good-neighborly and transparent.”

And “good-neighborly” is exactly what they have been, their amicability presenting stark contrasts to Minsk’s contentious dealings with Poland, Russia, Lithuania, the United States, and the EU. Significant disruptions were avoided even when Belarus and Ukraine wound up on the opposite sides of political spectrum as a result of the 2004 Orange Revolution, with Ukraine striving for European integration, and Belarus orienting itself towards Russia. Although their political discourse was somewhat weakened at the crest of the orange wave, Minsk and Kiev have pragmatically continued their relations in the economic realm.

Ironically, their bonhomie was sustained by a number of negative factors, including the deterioration of Belarus’ relations with Russia and the EU as well as Minsk’s and Kiev’s shared problem of energy dependence on Moscow. Trying to break its political isolation from the West and soften the economic impact of its spat with Russia, Belarus has been looking for new markets to sell its products and new suppliers of the resources it needed and seeking to diversify its energy resources. Coordination on the gas and oil transit (for example, on projects like extension of the Odessa-Brody oil pipeline or the establishment of the Eurasian oil transportation corridor) is likely to lead to an even closer cooperation between Ukraine and Belarus.

At the same time, beset with energy and financial problems, Ukraine is interested in “rapprochement” with neighbors like Belarus. In trying times, a neighbor like Belarus comes in useful. This is why criticizing Belarus’ treatment of the political opposition and its disregard for democratic freedoms has not precluded Kiev from cooperating with Minsk in the economic realm. The only cloud that had shaded on the Belarusian-Ukrainian horizon was the problem of the demarcation of the Belarus-Ukraine border. The Belarusian side tied ratification of the demarcation agreement with the reimbursement of the debt by Ukraine; the Ukrainian side contended the debts to Belarusian companies formed in the early 1990s were not Ukraine’s state responsibility. But even this cloud has been dissolved in early April when the Belarusian parliament ratified an agreement on the demarcation of the border between Ukraine and Belarus, opening up even more opportunities for the development of bilateral economic relations.

Combined with the changes in Belarusian policy, Yanukovych’s election brings new opportunities for both Belarus-Ukraine and the Belarus-EU relationships. Although he was depicted as Moscow’s incompetent crony after his humiliating defeat in 2004, Yanukovich came back in 2010 advocating independence from Russia and Ukraine's integration with Europe. His yesterday’s statement that Belarus and Ukraine “have always known how to unite to defend national interests” gives reasons to hope for more cordial discourse with Europe, which is advantageous for both Minsk and Kiev. In fact, as Belarus’ neighbor and the member of the Council of Europe, Ukraine is in a unique position to mediate between Minsk and Brussels. It has had regular and frequent contacts with Minsk at the official level, which are hardly possible between Belarus and the EU member states today.

Unlike the EU member states, Ukraine has never imposed restrictions on the travel of Belarusian officials. It also expressed opposition to the EU policy of international isolation and imposing additional sanctions on Belarus. Additionally, unlike Belarus’ members Poland and Lithuania, Ukraine is not bound by the EU official line on Belarus and, thus, it can conveniently take the middle ground on most issues.

The position of a middleman between Belarus and the EU would be an asset for Ukraine’s international position, which is probably why the idea has already been voiced in Kiev several times. For example, it is guided by this idea that Ukraine offered to host the meeting of the heads of national security councils of Ukraine, Poland and Belarus during the 2005 crisis over the Belarusian treatment of the Union of Belarusian Poles. Therefore, with Yanukovych at the helm, the intensification of Belarusian-Ukrainian relations could not only help the Belarusian economy, but also contribute to improving the Belarus-EU discourse, to both Kiev’s and Minsk’s advantage.