Научно-исследовательский центр Мизеса

Gas price talks between Belarus and Russia overshadowed the uncertainty over oil delivery and transit conditions in 2007. Striking an oil deal with Russia may also be difficult.
The Kremlin is determined to revise the whole spectrum of economic relations with Belarus. If some extraordinary circumstances do not prevent it from implementing its plans, oil supply schemes will no longer fuel Belarus' economic growth. The government would have to revise its exchange rate, fiscal and social policies.
Whatever changes are introduced into the oil contract, one thing will remain the same - Russian oil companies will always be interested in supplying the Navapolatsk and Mazyr refineries with crude oil because of a shortage of oil refining capacities at home. The rising crude oil prices and demand for oil products in Europe guarantee Russian suppliers considerable revenues. Russia's largest oil companies have a big influence on government decision-making in the industry. It is difficult to imagine that certain groups in Moscow can block them access to a source of revenue.
The Navapolatsk and Mazyr refineries will not become unprofitable after a rise in crude oil prices. However, their revenues may decrease considerably, just as the amount of taxes they pay into the budget. The government would have to raise taxes for the refineries or tighten its belt. Teachers and doctors would be the first victims of a sharp fall in oil processing revenues.
The government is unlikely to sell off the refineries in 2007. Oil booms usually prompt authoritarian governments to nationalize profitable companies. The refineries would be encouraged to negotiate and carry out projects involving Russian companies such as Lukoil and Rosneft. The government can also offer a non-controlling stake to Russian oil companies in return for an oil field in Russia or crude oil deliveries at a fixed price.
Since the sale of Belarusian refineries is out of the question in 2007, Moscow is likely to insist on a price increase from less than $260 for a ton of crude to approximately $450. This is the price that Russia charges Moldova and Ukraine. Belarus would try to negotiate for deliveries at a rate applied to Russia's domestic consumers, but this would be impossible without big concessions in forming the so-called union state.
Estimates by the Privatization and Management Institute suggest that duty-free crude oil imports make Belarusian oil products more attractive to exporters than the Russian ones and deprive the Russian budget of significant revenues. Russia may demand a share of Belarus' revenues from sales of oil products, threatening to impose a customs duty on crude oil exports. A possible change in crude oil pricing may force the Belarusian government to revise conditions on which it sells oil products on the domestic market. Budget revenues mainly come from domestic sales, says Alena Rakava, an expert with the Privatization and Management Institute. The ratio of revenues from domestic sales on exports is 9.8 to 1 for AI-95 gasoline, 8.6 to 1 for A-92 and 5.8 to 1 for diesel fuel.
If the crude oil price rose by 45 to 60 percent, the government would be unable to shift the fiscal burden to consumers. A gasoline price rise to more than $1 per liter would anger motorists and trigger inflation. The National Bank is unlikely to cut the money supply to curb prices.
The government should brace itself for an end of the era of cheap oil and lucrative oil processing contracts. It should be prepared to restructure the economy and adapt its monetary and fiscal policies to new conditions.

Table 1 Oil export revenues ($ per one ton of exported oil)

Source: Privatization and Management Institute