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Belarus Sanctions Might Be The Real Deal

Ryanair plane

Multitudinous protests and years of international condemnations notwithstanding, the regime of Alexander Lukashenko in Belarus might soon see its final days, all brought about by an innocuous Ryanair flight from Athens to Vilnius. Regardless of what one thinks about the persona of Roman Protasevich, the jailed opposition journalist, the fact that the Belorussian President personally ordered the hijacking and military interception of a civilian flight that did not breach any rules whatsoever has brought European political circles almost to the boiling point. All the talk in Brussels is now revolving around the idea of standing up against tyranny (now that the autocrat Europe has to face is substantially more vulnerable than the ones EU leaders have been dealing most of the times) and it seems that flight bans are only the first step in a prolonged saga to come.

The plane incident couldn’t have happened at a worse time for Belarus’ refiners. Next week, starting from June 01, the Mozyr Refinery will shut down for planned maintenance. This means that for 15 days, Belarus will only depend on the Novopolotsk Refinery (also known as Naftan) to supply the domestic market with fuels and products. The problem with Naftan is that it was placed under a new round of US sanctions – on April 19, the US Treasury Department’s Office of Foreign Assets Control (OFAC) altered the general license of Belorussian state-owned entities from 2G to 2H, meaning that by June 03, 2021 any entity that does not seek to be sanctioned should wind down all transactions with Naftan (as well as Belneftekhim, the country’s petrochemical holding). Novopolotsk has routinely been supplied by Russian companies like Rosneft or Surgutneftegaz – they have stopped providing crude to Naftan in May and it remains an open question if they would start again (and to which extent).

It remains an open question whether Belarus would be able to supply itself in a period of prolonged undercapacity. Even if Minsk survives the double whammy of US sanctions and idled refining capacities, it will most probably see its opportunities for product exports significantly curtailed – just as Belorussian refiners were reorienting their flows to move across Russia and load from its eastern neighbour’s Baltic ports. It also needs to be noted that exports of oil products provided the Belorussian economy with much-needed foreign currency, a dearth of which might depress the economy further on. Little does signal so far that either US or EU sanctions will be extended to the other refinery - the Mozyr Refinery is less likely to receive the same sanctions treatment, primarily because the downstream asset is co-owned by Slavneft, a Moscow-based joint venture of Rosneft and Gazprom Neft that also operates the Yaroslavl Refinery in Russia.

One hypothetical way of getting around any sanctions for Minsk, even if temporarily, would be to invite Russian companies to export their production on the Belorussian market. One would struggle to find a historical precedent for such a scenario as Belarus has always been long on refining output, its profitability boosted by years of duty-free pipeline crude imports from Russia. Sanctions on Belarus have also had collateral damage across Ukraine which has learned to rely on transportation fuels from Mozyr, its debilitated refining sector counting only 1 operating refinery out of the 7 nominally existing. Ukrainian authorities have flaunted the idea of buying more diesel and gasoline from Poland and Lithuania, however it seems more likely it would import more Russian products, using a buffer company to insulate itself from geopolitical risks. Related: Russia: Current Oil Market Deficit Is 1 Million Bpd

The US sanctions have certainly dented Belarus’ manoeuvring space; however, it is the European Union that has the power to deal the ultimate blow to Minsk. An intense day of negotiations in Brussels on May 25 seemed to end on a concerted note, indicating that the EU would seek to replicate the American sanctions regime and levy sanctions against Belarus’ fertilizer, steel, oil and petrochemical sectors. The implementation of this principled agreement might take more than the externalized image of unquestionable concord might suggest, previous attempts to penalize the Lukashenko regime for its repeated abuses of human rights have been held up by countries like Cyprus or Hungary. The European Union is always susceptible of repeating its well-honed skill of bureaucratic loitering, however in this instance it seems that a quick reaction might be at hand.

The rather rare unison in which European leaders react to the Belorussian story developing might cloak the long-term challenges that Brussels can witness vis-à-vis Minsk. Slapping sanctions on Belorussian entities, as much as they inflict damage on the circle of Lukashenko, concurrently bring them closer to Russia, effectively the only economy capable and willing to help out Belarus’ ill-fated companies. President Lukashenko is very unlikely to cede power in a peaceful manner, a sentiment oft repeated by “Europe’s last dictator”. He might not need to, were Belarus’ leading state-owned companies be sold to Russian peers – i.e. OFAC might feel no qualms about sanctioning the Naftan Refinery yet would it do the same if the refinery were to be owned by Rosneft, one of the world’s largest oil companies? Seems rather unlikely.

By Gerald Jansen for Oilprice.com


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