Russia, Belarus clash over oil, casting doubt over 2020 supplies

MOSCOW (Bloomberg) - Russia and Belarus are locked in a dispute over oil shipments, leaving 2020 supplies unresolved as the nations’ presidents hold talks to break the impasse.

Russia’s Vladimir Putin and his Belarusian counterpart Alexander Lukashenko have spoken twice by phone this week in an effort to reach an agreement. At stake are crude deliveries to Belarus totaling 24 million tons a year, while the future of transit volumes -- supplies passing through the country en route to Europe -- remains uncertain.

During a call on Monday, the presidents agreed to instruct their governments to work out the details so that contracts could be signed by Jan. 1, according to a statement on Lukashenko’s official website, though no accord has yet been announced. The dispute underlines threats to bilateral ties, which have been strained as Russia seeks a closer trade and political union.

Disagreements center on transit fees and the volume of oil to be supplied to Belarusian refineries. Of the 24 million tons that Russia supplies annually to Belarus, 18 million tons go to the nation’s processing plants, while the rest is re-exported, bringing in additional revenue to Belarus’s budget in the form of export duties. Belarus’s right to re-export ends this year.

“Agreements haven’t been reached,” Kremlin spokesman Dmitry Peskov said on a conference call when asked about a possible halt in supplies to Belarus. But he warned against exaggerating the risks, saying: “I suggest we don’t discuss apocalyptic scenarios.”

Reuters reported Tuesday that Russia may stop oil shipments to Belarus as talks stall on terms. A suspension of supplies would mean more volumes of Urals crude are exported via other routes, in particular from Baltic ports, the news service reported, citing people it didn’t identify.

If agreements aren’t reached on Tuesday, the Russian and Belarusian governments will have to devise a “compromise interim arrangement” to ensure continued shipments, according to the Belarus statement. A more permanent solution can then be worked out by both presidents in mid-January, it said.

Last week, Lukashenko threatened to reverse oil flows on Belarus’s section of the Druzhba pipeline if Russia continued to raise crude prices for the country. That would leave Russia with only a third of its export capacity to Europe via Druzhba, he told Echo Moskvy radio station.

Ties have also been tested by moves by Belarus’s Defense Ministry to discuss possible peacekeeping drills with NATO, according to Russia’s Tass news agency. In the past, Minsk has often sought to highlight closer ties with the West when Russia has stepped up the pressure in talks with Belarus.