Is Lukashenka’s ‘Oil Emirate’ Over?

Gasoline can go up to a euro per litre.

Due to the supply of low-quality Russian oil to Belarusian refineries, the export of Belarusian oil products abroad has decreased by 17% over the past six months. In monetary terms, Belarus lost $431 million compared to the same period last year.

Belneftekhim had to admit that the Belarusian refineries suffered hardships. It caused a revision of production plans and reduction of workload, as well as the attraction of additional loans and suspension of social programs.

In addition, over five first months, Belarus lost about $130 million caused by the tax manoeuvre in five months.

What consequences may it bear for the country's economy? Economist Leu Marholin answers questions of Charter97.org.

- Overall losses on oil amount to $560 million within six months. Is this much or not for the Belarusian budget?

- This figure is huge for the Belarusian budget if it really corresponds to reality. In terms of losses from the tax manoeuvre, this is apparently true. But as for the losses caused by "dirty" oil, I guess figures are warmed up a Iittle.

But in general, the figure is large. Given that the GDP of Belarus is about $60 billion, the losses amount to a percentage of GDP.

Although, I guess that the Belarusian side overestimates the "dirty oil" figures. I can understand the desire of the Belarusian authorities to add numbers. It reminds me of the behaviour of dentist Shpak in the Ivan Vasilievich: Back to the Future. He first says that one golden cigarette case was stolen and later he says two and so on.

- Will the figures of oil losses grow?

- Yes, of course.

Much depends on an approach. We believe that these are losses. And Russians do not think so. "We will just sell you oil at world prices. You are an independent state, you should buy and refine it", this is their message.

The problem lies elsewhere. Lukashenka will, remembering the "brotherly friendship" and "trenches in which they fought together," seek Russia to compensate for the rise in oil prices.

But, by and large, the problem lies elsewhere. The problem is that our refineries are constantly being "reconstructed", "modernized", but always lag behind the European level. It means that the yield of light petroleum products is lower and every ton costs more, and the profit is decreasing. And it may happen that oil refining will not bring any profit at all. Given that this profit should cover mismatches in the domestic market, the situation becomes tense enough.

And Russia's position is simple: if you want Russian prices, then do the rest for Russia.

This time the position of Russia is quite tough. There is no need to mention its unwillingness to compensate for the tax manoeuvre. Even an almost agreed loan of $600 million is not granted under the pretext that some "integration processes" are required.

- Will it result in the growth of fuel prices both for the population and for industrial enterprises which buy Belneftekhim's products?

- I think so. After all, fuel prices in the nearest European countries and in Ukraine are higher than in our country.

And they are already growing in our country. This process will continue little by little. But they will surely grow. Under current conditions, motor fuel cannot cost less than one euro per litre. And here it is still much cheaper.

The only constraint here is the reaction of the people. After all, our welfare is also much lower than in Europe. If fuel prices are half as low, the welfare is 5-6 times lower, if not 10 times lower.

Therefore, the authorities will only observe the response of people. They will be as careful as an engineer on a minefield.

- Some analysts note that the Belarusian authorities have been betting on oil and oil products for 25 years. At one point, within six months, a whole flock of "black swans" appeared. Why is Lukashenka's "oil emirate" over?

- It did happen. Since the mid-1990s, the Belarusian authorities have been able to attach themselves to the oil oxygen cushion. In different years it acted differently. At one time Russia itself suffered when oil prices were low and there was a default in 1998.

But in the 2000s, the price of oil grew steadily and it seemed that it would last forever. And our authorities, first of all, Lukashenka, do nothing unless the situation forces them into action.

Lukashenka has only one impetus: when people start speaking out. He believes that everything he does is right. If Russia denies us $600 million, we can borrow it from China and take it from the domestic market. Or in the foreign market, even at 9% per annum. But we will survive.

But if protests rise within the country - so far there are few and they are of local character, as in Brest - no reforms are carried out. And until there are no reforms, there will be no cheap borrowings (for example, from the IMF).

- You mentioned the loan of $600 million not received from Russia. How much will this refusal complicate the financial situation, taking into account the oil losses?

- I think it will not be critical. The end of the year, when we look at the level of gold and foreign exchange reserves of Belarus, will show us. If they decrease, it means that the issue has not been resolved and we had to use the gold reserves.

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