Posts Tagged Russia

It’s the New Year! Time to negotiate new oil and gas contracts!

Every year people hope that the consumers of Russian gas and oil will agree with Moscow on new deliveries. But same old, same old. We don’t even know the true nature of the political and economic deals that underlie the negotiations every December and January. Official information is very scarce.

If you go to a shop for a bottle of cognac, you look at the price and take out your wallet to pay. The energy problems are the result of lack of transparency, of the triumph of geopolitical considerations over mathematical formulas in calculating energy prices and of the desperate dependence of a number of countries on Russian supplies.

I get the impression that the Kremlin considers the annual hydrocarbon disputes to be mere lovers’ tiffs: “Hey, no harm done, we’re still neighbours.”

One year ago Ukraine, and later a large chunk of the EU, suffered shortages of Russian gas. The year 2010 started with the Belarus-Russia oil row. Funnily enough, the oil dispute arrived at the same time as the new Customs Union of Belarus, Kazakhstan and Russia, which came into existence on 1 January. Moscow and Minsk are now continuing talks on a new oil agreement, following a spat over transit tariffs.

Russia says oil deliveries to Belarus were stopped on 1 January and resumed three days later. Belarus says that oil is being delivered continuously. But it has threatened to cut electricity supplies to Russia’s Kaliningrad enclave due to the lack of a tariff agreement. Lithuania, which was forced to close its Ignalina nuclear plant at the end of last year is watching nervously.

Belarus buys Russian oil for internal purposes as well as for refining and selling it on to Europe. To get a share of Belarus’ oil incomes, Russia imposed a reduced duty – around one third of the levy applied to other countries – on crude oil sold to Belarus. This arrangement expired last year, with Minsk claims that crude oil should be supplied free of duty within the Customs Union. Moscow offers no reductions. But could think of some 5 million tons of oil that Belarus will be getting duty-free for its internal needs.

Meanwhile frosts, expectations of an improving economy and the Minsk-Moscow dispute have catapulted crude oil prices to their highest close in nearly 15 months, hurdling $81 a barrel.

And it remains highly symbolic that the commercial situation around the oil pipeline, which is called Druzhba (the Russian word for “friendship”), is as messy as the broader efforts to create a Russia-Belarus strategic partnership. Russian deputy prime minister Igor Sechin assured that talks on oil deliveries would be continued due to the pair’s “exclusive” bilateral relations. And the talks are still going on…