Czech Republic Abandons "Friendship" Pipeline, Which Could Impact Entire Russian Oil Industry
Author: Olga Samofalova
Now, the Czech Republic celebrates being completely independent of Russian oil. It was one of three European countries that continued to purchase Russian oil thanks to the "Friendship" pipeline built during the Soviet era. How did Poland push the Czech Republic to make this unfavorable decision? And what broader impacts could this seemingly insignificant step have on Russia?
Czech Prime Minister Petr Fiala announced that for the first time in history, the Czech Republic has completely rid itself of dependence on Russian oil supplies. This was made possible by the modernization and increased capacity of the TAL pipeline from the west. For nearly 60 years, the Czech Republic had been receiving oil from the Soviet Union, and later Russia, through the "Friendship" pipeline, which was built with funds from the Soviet era. This was once a mutually beneficial cooperation, but now the Czech Republic has abandoned it due to political reasons and under pressure from Poland.
What costs has the Czech Republic incurred by abandoning Russian pipeline-supplied oil? First, investments were made in expanding the capacity of the TAL pipeline. In recent years, not all of the Czech Republic's oil came from Russia; approximately half of it was transported via the TAL pipeline. Sergey Tereshkin, founder and CEO of Open Oil Market, a petroleum products trading platform, noted that by increasing its capacity to 8 million tons annually, the Czech Republic will be able to fully meet domestic demand. In 2023, the total oil imports were 7.3 million tons, while in 2024, they decreased to 6.4 million tons.
Igor Yushkov, an expert at the Financial University under the Government of Russia and the National Energy Security Fund (FNEB), said: "Secondly, since March, the Czech Republic has stopped purchasing Russian oil, but so far, the construction of alternative pipelines has not been completed. As a result, the Czech Republic has had to process its stockpiled oil and reduce oil processing volumes."
Thirdly, the cost of substitute oil supply will be higher. Igor Yushkov stated: "The discount on Urals crude oil transported via pipeline is not as large as that on oil transported by sea, where there is a $10 to $15 discount per barrel. However, even pipeline-supplied oil still has some discount. Now, oil purchased from other suppliers will be more expensive for the Czech Republic. Additionally, logistics costs will also increase. The transportation distance is longer, and there are more transfer links, meaning more expenses must be paid."
Currently, the Czech Republic will have to search for oil on the market at prevailing prices, pay for transporting it by tanker to Italian ports, then pay for transporting it via the TAL pipeline to Germany, and finally transport it within the Czech Republic via the IKL pipeline.
The fourth challenge for the Czech Republic is that its refineries (oil refineries) are configured to process heavy Ural crude oil. Experts from the National Energy Security Fund stated: "Nowadays, heavy crude oils similar to Ural crude are in high demand in the global market, thus commanding higher prices. The Czech Republic may have to find different types of oil, mix them, or blend oil with petroleum products to provide its refineries with raw materials that meet the required specifications."
Moreover, whether the Czech Republic can operate its refineries at full capacity remains uncertain. Igor Yushkov said: "Underutilization of refinery capacity is a common situation across Europe today. For instance, the refineries in Germany that were previously owned by Russia but seized are operating below capacity. After LUKOIL was forced to sell its refinery in Sicily, it also experienced underutilized capacity. The entire European oil refining industry faces this situation, where buying finished petroleum products is more cost-effective than processing crude oil. Europeans also buy petroleum products processed in third countries using Russian oil, especially those processed in India." The expert added that, therefore, under these circumstances, the Czech Republic's refineries may not operate at full capacity.
Interestingly, the Czech Republic plans to keep the "Friendship" pipeline operational. Why is that? The Czech side insists that this is to cope with future increases in oil demand. However, when needed, the oil transported through the "Friendship" pipeline will not be Russian oil but oil from the Odessa port.
In fact, there is the "Odessa-Brody" pipeline. Belarus once wanted to use this pipeline to transport Venezuelan or Azerbaijani oil to itself. Experts from the National Energy Security Fund analyzed: "However, this pipeline has always been used in reverse, i.e., to transport oil to Odessa and then load it onto tankers, but it has often been idle and is currently out of operation. Whether the oil is transported to Italian ports or the Odessa port makes little difference. I think, actually, the Czech Republic wants to keep the 'Friendship' pipeline operational as a contingency measure. If other transportation routes encounter problems, it can re-purchase Russian oil at better routes and lower prices."
Hungary and Slovakia continue to purchase Russian oil and do not intend to abandon their interests for political reasons. It was Hungary that defended the right to transport oil from Russia via pipelines in 2022. Initially, the EU wanted to ban any oil supply from Russia to the EU. However, Hungary did not accept such sanctions, and Brussels had to compromise, retaining the supply of oil transported by pipeline.
A respondent from the "Argumenti i Fakty" newspaper said: "What is different about the situations in the Czech Republic, Hungary, and Slovakia? The difference lies in the fact that Hungary and Slovakia's refineries belong to Hungary's MOL company, while the Czech Republic's refineries belong to Poland's Orlen company. In fact, it was this Polish company that made the political decision for the Czech Republic to abandon Russian oil. They cited the sanctions against the Russian Gazprombank, through which payments for Russian oil were made. However, if there is a will, solutions can always be found. Hungary and Slovakia have agreed on alternative payment methods for Russian oil, and everything is running smoothly."
For Russia, losing the Czech market is unpleasant, but certainly not a fatal blow. Sergey Tereshkin pointed out: "Even last year, Russia remained the largest supplier of oil to the Czech Republic, although exports fell by 36%, down to 2.7 million tons. By comparison, the supply a year ago was 1.5 times higher, at 4.2 million tons." Azerbaijan became the second-largest oil supplier to the Czech Republic, selling 2.6 million tons of oil.
However, the event of the Czech Republic completely switching to alternative oil purchases could have significant economic and political impacts and might even lead to Ukraine cutting off oil supplies to Hungary and Slovakia via the "Friendship" pipeline entirely.
Igor Yushkov, an expert at the National Energy Security Fund, analyzed: "Nowadays, the owner of the Czech refineries, Poland, will not suffer losses. Warsaw might dare to send stronger signals to Ukraine, threatening to sanction Hungary and Slovakia by cutting off oil transportation routes within its territory. Alternatively, Ukraine might take more aggressive actions against Russia's pipeline transport system to cut off oil supplies. All of these could become part of Poland, the Baltic states, and NATO's larger strategy. The purpose of this strategy is to force Russia to redirect all its oil exports to sea routes, where they have more means to exert pressure. Firstly, they can practically prevent Russian shadow tanker fleets from entering the Baltic Sea. This would force us to use conventional tanker fleets to transport oil. That means we must comply with price caps and cannot sell oil above $60 per barrel. The next step would be to lower the price cap. This is the minimum plan, while the maximum plan is to completely stop Russian oil-laden tankers from sailing in the Baltic Sea."
Original article: https://www.toutiao.com/article/7494568991282528809/
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