Q+A-Can Belarus cope with higher Russian oil prices?

Mon Jan 4, 2010 3:02pm GMT

Jan 4 (Reuters) - Russia and Belarus are locked in a dispute over pricing for oil imports that could strain the Belarussian economy by forcing Minsk to pay much higher prices for oil.

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For a factbox on the Druzhba pipeline [ID:nLDE5BU0QZ]

The following are the main issues for Belarus of a prolongued pricing dispute:

WHAT IS THE DISPUTE ABOUT?

The dispute is about the amount of duty Russia believes Belarus should pay on oil imports from its eastern neighbour.

Before 2007, Russia supplied oil to Belarus without duties and Minsk was supposed to reimburse Russia for those volumes exported onwards, though Russia complained that those payments were not made properly.

European oil supplies were disrupted in January 2007, when Russia briefly shut of exports along the Druzhba pipeline in a row over the imposition of export duties on crude.

The duties are fixed each year and in 2009 totalled 35.6 percent of the Russian standard crude export duty, which will total about $267 a tonne from Jan 1 2010.

Minsk has insisted that Russia supply duty-free oil not only for volumes consumed domestically in Belarus, but for all Russian crude supplied to the country because of a customs union agreement it signed with Russia and Kazakhstan last year.

WHAT IS THE IMPACT FOR BELARUS?

Oil and oil product exports are one of the main sources of income for Belarus's $50 billion economy, helping to prop up the government of President Alexander Lukashenko.

Analysts in Minsk said refined oil products and crude oil made up about 37 percent of Belarus exports last year and warned that a steep decline in profitability would increase Belarus' trade deficit, which totalled $6.3 billion in the first 11 months of 2009.

Belarus' economy was hit badly by the economic crisis as demand for its goods in Russia and Europe -- its chief export markets -- deteriorated significantly.

The International Monetary Fund (IMF) expects the Belarussian economy to grow 1.8 percent in 2010 after a 1.2 percent contraction in 2009, and the budget deficit is seen at $1 billion [ID:nGEE5B21X0].

The IMF granted in December $688 million to Belarus -- the fourth tranche of a $3.63 billion stabilisation loan -- saying the economy is starting to emerge from the crisis, though policy must remain prudent [ID:nLDE5BI06V]. Belarus plans a maiden sale of about $2 billion in Eurobonds over coming years and officials say the size of that issue will depend on the economic situation.

EAST OR WEST?

Russia says the row is about reducing Soviet-style subsidies to its neighbours, though diplomats say Moscow's tougher stance towards Belarus reflects a wider concern about Lukashenko's overtures to the West.

Lukashenko, in power since 1994, snubbed the Kremlin last year by pulling out of a security summit and has praised the European Union's Eastern Partnership -- an initiative to bind Brussels closer to six former Soviet republics including Belarus.

Lukashenko says he wants good relations with Russia but he has been vociferous in criticising Moscow's attempt to up prices for energy. (Reporting by Minsk bureau and Lidya Kelly in Moscow; Writing by Guy Faulconbridge, editing by William Hardy)