The Oil Magic of Belarusian Economy Belarusian Statistics Agency reported about a fantastic growth of exports in January-February 2012. Compared to the same period of the last year the country’s exports grew by impressive 62,5%.

The official propaganda trumpeted that that Belarus has successfully overcome all the economic troubles that hit the country in 2011.

However, the reality looks less euphoric. The breakthrough in foreign trade is not a result of a particularly wise economic policy or an overarching reform strategy. Securing cheap Russian oil supplies and selling oil products to the West remains the backbone of Belarusian economy. Exports of other goods remain unimpressive.

The Origins of the Belarusian Oil Offshore

Belarus inherited two large oil refineries from the the Soviet Union. Naftan refinery in the north of the country was established in 1963 and Mozyr Oil Refinary in the south started to work in 1975. Both companies were intended primarily for exports to the West. They processed crude oil from Soviet Russia and then exported processed products such as of fuels, gasoline and bitumen.

After the collapse of the USSR these two oil refineries were among the most advanced enterprises that the newly-established Republic of Belarus had. And at the beginning of the 2000s the Belarusian government discovered a way to make a maximal use of these assets.

It literally created an oil offshore zone for Russian companies that wanted to provide crude oil for procession at Naftan and Mazyr Oil Refinery. Thanks to the Union State of Russia and Belarus established in 1996 Russian companies did not have to pay export duties on crude oil on the border between the two countries.

To make Belarusian refineries more attractive than their Russian competitors Belarus set exports duties on oil products to third countries at a level lower than in Russia. Thus, it became more economically sensible for Russian oil companies to process their crude in Belarus rather than in Russia.

It became  highly profitable for the Belarusian government and firms to buy oil in Russia, process it at home and then export to third countries - primarily EU states and Ukraine. That made up up to 40% of exports in some periods. It also generated the lion’s share of hard currency revenues of Belarus.

This foreign trade scheme established a strong correlation between Belarusian imports of crude oil from Russia and overall exports of the country.

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Belarus Digest