A not-so-frozen conflict and protests of rigged elections show cracks in Russia’s influence
Developments in Belarus following presidential elections have implications for Belarusia's political orientation that, depending on the outcome, could reduce competition from Belarusian refineries in Northwest Europe’s refined product markets. In a good year, Belarusian refineries processes 450,000 b/d of crude and export 275,000 b/d of gasoline and diesel. Were Belarus to go its own way and leave its customs union with Russia, refiners would lose favorable export duties and other terms that support refining profitability. The refining sector could become less competitive, eliminating competition in export markets. This was the fate of Ukraine’s refineries, who 15 years ago also processed more than 400,000 b/d of crude. Nowadays, about 60,000 b/d of crude and condensate is processed in Ukraine and it relies on imports of products.
But the risk of a significant shift to a pro-Western orientation is low, according to ESAI Energy's analysis. Grassroots protests may yet force Lukashenko from power and usher in changes to domestic politics and relations with Russia, but they are unlikely to change Belarus’s pro-Russia orientation. Unlike Ukraine, there is not a significant component of Belarusian society with a galvanized pro-Western identity. Russia maintains significant economic subsidies and leverage that are a powerful disincentive for the country to leave its orbit. Indeed, protests seem focused on rigged elections and ending Lukashenko’s rule, not fundamentally changing the country’s political orientation to pro-Western.
Meanwhile in the South Caucasus, fighting has flared in the frozen conflict between Azerbiaijan and Armenia over disputed territory, putting at risk the flow of more than 500,000 b/d of crude oil from Azerbaijan to the Med. Both sides have fired heavy artillery and claim some military successes, and the fighting risks spiraling out of control. More than 500,000 b/d of crude flows through the BTC pipeline that originates in Baku and traverses Georgia and Turkey. As of this writing, Azerbaijan President Ilham Aliyev has warned of Armenia’s desire to strike at oil and gas export pipelines, while other officials have offered assurances of increased security.
During the 2008 Russian invasion of Georgia, all it took was a Russian air attack in proximity to the pipeline, effectively warning shots, for the flow of oil to be shut down as a precaution. A similar strike, only this time on Azeri territory, by either Russia’s air force or through support of a proxy in Armenia or the Republic of Artsakh (e.g. using surface-to-surface missiles), would probably enable Russia to quickly achieve two critical objectives: (1) dissuade Azerbaijan from attempting to take back territory by force and help set the stage for a ceasefire; and (2) reconfirm to Turkey and the West that the South Caucasus is Russia’s sphere of interest. Such a strike, however, would also damage years of Russian efforts to improve relations with Azerbaijan and strengthen Russia’s position as the dominant player in the region, so Russia may hesitate to undertake such a strike. An intentional or accidental strike cannot be ruled out and, to the extent that fighting escalates and Russia grows concerned about regional stability or challenges to its supremacy in the South Caucasus, the likelihood of a disruption to oil exports will grow. In the current oil market, it would also have the effect of taking some oil off an oversupplied market and boosting oil prices.
In yet another destabilizing event in Russia’s backyard, violent protests erupted in Kyrgyzstan following parliamentary elections in that former Soviet republic. Of course, popular challenges to less-than-fair elections in Belarus and Kyrgyzstan in themselves are worrisome for the Putin regime, which depends on rigged elections to weaken its own domestic political opposition. On the global stage, in recent years Russia appears increasingly omnipresent and confident. The simultaneous threats to stability and Russian control in its own backyard, however, is a reminder of the fragility and limits to Russia’s global influence. For example, Turkish support for Azerbaijan in its conflict with Armenia leaves one wondering just how substantive and sustainable cooperative relations between Russia and Turkey are.