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Premium market at risk after Lukashenka says Crimea is Russian

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Lukashenka called Crimea part of Russia in an interview with a Russian TV propagandist / Euroradio 

Ukraine is yet to join Western sanctions against Belarus but promised to do so if the government in Minsk recognizes Crimea as a part of Russia.

In an interview with Russian propagandist Dmitry Kiselyov, Aliaksandr Lukashenka claimed he had "an arrangement" with Vladimir Putin to visit Crimea. Then he called the peninsula a part of the Russian Federation.

The Ukrainian side has yet to speak up about the specific consequences of this statement, but it has already promised to retaliate "in full."

Euroradio found out why the sanctions hit the oil processing industry the most. And why it would be hard but not impossible for Ukraine to find substitutes for the Belarusian petrochemicals.

 

Oil products are essential to both countries

Belarus and Ukraine are interdependent for fuel and bitumen trade / Reuters

During the January – September period Belarus exported $28.1 bln worth of goods worldwide. Ukraine's share was $3.5 bln.

The most important item of export is oil products. The Belarusian National Statistic Committee hides this information, but according to the State Statistics Service of Ukraine, Ukraine acquired $1.8 bln worth of such products in the last nine months.

The neighboring country is the biggest consumer of Belarusian petrochemicals. Even the sanctioned Naftan ships there.

Ukrtatnafta refining complex (Kremenchuk oil refinery plant) / ukrtatnafta.com

Sergei Kuyun judges Belarus and Russia could've "forced us [Ukraine. - Euroradio] on all fours, not just our knees" if they stopped the supply. Together they dominate the Ukrainian oil market with about 60% of the combined market share.

Ukraine can change the situation, but political will and time are required. There have been some successes already: maritime infrastructure for bitumen supplies has evolved significantly in this past year. Belarusian produce constituted 45% of the market during January – August.

"Our capacity is enough to substitute for the Belarusian produce," says Kuyun. According to the expert, the price is pretty much the same. Ukraine will have to pay more for logistics but only marginally.

The most significant Ukrainian oil refinery plant in Kremenchuk, Ukrtatnafta, reported increasing petroleum refining production. Head of A-95 notes it's not about the market division yet but rather about finding an alternative for certain imported products.

It is also possible to increase supply from Poland.

"The Poles can mobilize their seaports and deliver the produce to Ukraine via the pipeline system. Preliminary estimations show a different value from a market one, especially if we trade en masse," Kuyun writes.

Bitumen has been in high demand since Zelensky launched his 'Big Construction' road repairs project / pexels.comі

It turns out Ukraine is not ready to sanction Belarusian oil products. But the political turmoil that the Belarusian government is going through right now is pushing Ukraine to look for other ways of getting fuel and bitumen for their ongoing road construction

Anything but petrochemicals?

There's another reason it is disadvantageous to quarrel with Ukraine. Azerbaijan can ship crude oil only via Ukraine. Baku is the only other oil supplier apart from Russia that delivers to Belarus. In 2020, when Russia blocked the supply to Belarus, it was through the Ukrainian seaport Pivdennyi that the Mazyr oil refinery got crude from Azerbaijan. There is no telling the option will be available  the next time a conflict arises.

Regarding other industries, during the January – September period, we sold to Ukraine $333 million worth of fertilizers and $162 million worth of surface carriers. While it is hard to stop buying fertilizers crucial for agriculture, they can easily cut down on Belarusian transportation supplies

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