Russia politics: Quick View - Russia asks Belarus to ship oil through Russian ports

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Economist Intelligence Unit
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On September 2nd the Russian government said that Belarus would have to use Russian Railways, the Russian state-owned rail monopoly, and Russian maritime ports to export 5m-8m tonnes of refined oil annually if it wanted to continue receiving Russian crude oil at a discount.


On August 16th Vladimir Putin, the Russian president, was told during a meeting with his government ministers about Belarus's reluctance to use Russian port facilities to export its refined oil. In 2017 Belarus is set to receive 24m tonnes of crude oil from Russia at a discount, which it will refine and export to EU and Commonwealth of Independent States (CIS) countries. Most of Belarus's refined oil exported to non-CIS markets is shipped by rail to ports in Latvia and Lithuania, and Belarusian oil exporters have strong relationships with international oil trading companies in the two Baltic states. Should Belarusian exporters switch to Russian ports, they would have to bear costs associated with abandoning their existing networks. Also, the Baltic ports are closer to Belarus than the Russian terminals, which also do not operate in winter-as the Russian portion of the Baltic Sea freezes-and charge higher fees than the Baltic ports.

As a growing share of Russian oil is exported through pipelines, the oil shipping infrastructure of Russian Railways is becoming less profitable. In search for additional revenue, the company has offered Belarusian exporters a 50% discount on tariffs for refined oil shipped through the Russian ports of Ust Luga and St Petersburg. Belarus has showed no interest in the offer, as the discount would be valid for only two years, and given the Belarusian Oil Company's contractual obligations to its Baltic counterparts.

To put pressure on Belarus, Mr Putin suggested that discounted Russian oil would be shipped to Belarus only if a specified amount of Belarusian refined oil transited through the network of Russian Railways en route to Russian ports. Belarusian oil exporters have therefore been presented with a steep potential loss of revenue. However, they cannot switch oil suppliers: Russian price discounts are estimated to have provided them with a US$1.4bn of windfall profit in 2017.

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