No major oil concessions for Belarus from the Kremlin

Belarus has reaped some minor concessions from the Kremlin within the Eurasian Economic Community’s founding treaty. However, when it comes to oil duty exemptions – the most sensitive issue for Belarus – Russia is uncompromising. Minsk will insist on resolving the oil issue when the EEC takes effect on January 1st, 2015.

Meeting in Moscow last week, the Prime Ministers of Belarus, Kazakhstan and Russia could not find solutions to key aspects in establishing the Eurasian Union (Eurasian Economic Community, EEC); the decision will have to be made by the presidents.

In late May, the presidents of Belarus, Russia and Kazakhstan plan to sign the EEC founding treaty. During the prime ministers’ meeting, Belarus managed to find some compromise solutions to a number of controversial issues. However, it is the issue of oil duty exemptions that is at the top of Belarus’ agenda. President Lukashenko will attempt to resolve this at a presidential ‘troika’ meeting on April 29^th.

If exempt from paying oil duties, Belarus would earn additional USD 3-4 bn. The Belarusian government could use this money to minimise risks during the 2015 presidential campaign. The March national poll by IISEPS suggests that President Lukashenko’s popular rating has gone up. However, the state is reducing its social guarantees to the population which may have an undesirable effect on the president’s popularity.

The president emphasised how important it was to abolish exemptions, “Since we are building a union and strive to ensure that there are no borders, there should be no exceptions and restrictions on the movement of goods, labour and capital. This is the main goal”.

Meanwhile, during the prime ministers’ meeting, PM Myasnikovich and PM Medvedev reached an agreement over the procurement of agricultural machinery. Ahead of signing the EEC treaty, the Kremlin is using this agreement to compensate for its disagreement over oil issues.

In addition, Russian Ambassador Alexander Surikov confirmed Russia’s decision to maintain oil supplies to Belarusian refineries at the same level. In 2013, these volumes were revised by Russia every quarter – after Belarus had seized oil supplies to foreign markets under the guise of solvents and diluents without paying duties to the Russian budget. The Kremlin and Minsk have agreed to keep a steady supply of oil in 2014 at 23 million tonnes.

It is worth noting that, with the Kremlin dragging other CIS countries in the Eurasian integration, Belarus’ negotiating positions have weakened. Armenia’s Economy Minister Avanesyan stated that Armenia planned to sign the Customs Union treaty with Russia, Belarus and Kazakhstan on April 29^th, 2014. Kyrgyzstan also expressed the desire to join the Eurasian integration.

Thus, Belarus will insist on abolishing the oil duty exemptions and trade restrictions when the Eurasian Union takes effect on January 1^st, 2015. Meanwhile, Belarus is waiting for acceptable compensation from the Kremlin during the transition period until the oil issue is resolved.