Eastern Europe

Russia’s Entire Business Model Is Now At Risk

Russia's Entire Business Model Is Now At Risk

On the 19th of April Russia’s neighbor Belarus noticed a significant deterioration of the quality of crude oil being shipped through the Druzhba pipeline through Belarus to Europe. The name of the crude delivery channel means ‘friendship’ and was built during Soviet times to supply the Kremin’s ‘friends’ behind the Iron Curtain. Today the pipeline is the longest in the world and possibly the most important in Europe, feeding East and West alike.

Russia’s economy and federal budget is heavily dependent on revenue from hydrocarbon production and delivery. The Trump administration has made the Nord Stream II pipeline, currently being constructed to supply natural gas to Germany, a European security issue.

Poland and Germany have suspended accepting supplies from the Druzhba pipeline. Belarus has made an offer to Russia to reverse oil flows to get rid of contaminated oil and start pumping oil via an alternative route, Belarusian state oil concern Belneftekhim said on Thursday, reported Reuters.

The chemical contamination has been linked to a Russian storage facility along the pipeline route. Belarus has complained its infrastructure may have been damaged by the chemicals involved.

“Pumping through the southern section of the Druzhba pipeline into central and eastern Europe was halted overnight, Ukraine said. That brought the link to a complete stop since the larger northern branch of the link through Belarus into Poland and Germany had already shut down. Europe will be deprived of least 1 million barrels a day of crude flows for the duration of the outage,” reported Bloomberg.

“Technical problems connected with transit of the Russian oil will be solved constructively,” declared Deputy Energy Minister Pavel Sorokin at joint talks with the Belarusian government in Minsk on Friday, reported Russian state news agency TASS.

Belneftekhim concern is holding the talks between operators of the Druzhba pipeline on Friday to discuss the issues connected with Russia’s oil transit. Representatives of Belneftekhim, Transneft, Russia’s Energy Ministry, Russian Railways, operators of the Druzhba oil pipeline on the Ukrainian and Polish territory are participating in the meeting.

On April 19, the Belarusian side reported a sharp deterioration of the quality of the Russian oil running through the Gomeltransneft Druzhba main oil pipeline. Representatives of Belarus and Russia had a meeting on April 23 for discussing the issues related to the situation around Russia’s crude oil supplies. Head of Belneftekhim concern Andrey Rybakov had another meeting in Moscow on April 25 focusing on the issues around Russia’s oil supplies.

Russian Deputy Prime Minister Dmitry Kozak pledged that quality crude oil from Russia would arrive at the border with Belarus on April 29. The plan is to discuss the possibility of partial pumping-out of poor quality oil from the pipeline on the territory of Belarus and Poland on April 26, wrote TASS.

Moscow is keen to solve the problem quickly as this type of reputational hit could have existential consequences to its state mercantile energy business model.

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