Gazprom keeps up reputation with compromise in Russo-Belarusian oil dispute

The dispute about pricing terms of Russian gas supplies to Belarus was resolved formally on Russian terms, but practically with price concessions for Belarus. The compromise is only a temporary solution and is likely to be revised, should world gas prices go down and competition on the European market increases.

Russo-Belarusian negotiations over gas price for Belarus lasted nine months and formally ended on Russian terms – the price of gas and the pricing formula for Belarus remained unchanged. Russia confirmed her commitment to creating a single hydrocarbons marked by 2025. However, the parties signed a protocol on gas, envisaging compensation by the Russian government to the Belarusian government of the gas price difference with the bullish factor, according to which by 2019, equal netback pricing will be progressively established for Belarus by Russia. In numerical terms, Belarus will receive about USD 400 million in 2016, USD 800 million in 2017, and probably the same amount in 2018. Belarus is likely to use the so-called “inter-budgetary compensation” to pay off her other debts. As regards the oil issue, the parties reverted to the previous conditions: Russia committed to restore the supply of oil to 24 million tons per year, and Belarus to abolish the increase in tariffs for Russian oil transit.

Gazprom is the main beneficiary in the agreement. It should be noted that in 2016-2017, Gazprom will stand many trials in Europe for revising the pricing formula: for instance, with German Uniper (E.ON), French Engie, Polish PGNiG, Turkish Botas, Shell, as well as Dutch and Danish national suppliers. The Russian budget will suffer some losses, unlike Belarusian producers and the Belarusian budget. The Russian monopolist Transneft is likely to win some benefits too, so as during the dispute with Belarus it has tested new oil facilities in Ust-Luga and increased load on the BPS-2.

Yet another Russo-Belarusian gas dispute and its resolution have demonstrated that the Kremlin has become resistant to Minsk’s negotiation tactics and retained only a minor responsiveness.