BELARUS NEWS AND ANALYSIS

DATE:

08/01/2007

Report: Russia halts oil via Belarus

By YURAS KARMANAU

MINSK, Belarus

Russian oil exports to Europe via neighboring Belarus halted Monday as a bitter trade dispute between Moscow and Minsk spilled over into several countries including Germany and Poland.

EU energy chief Andris Piebalgs said the situation posed "no immediate risk" to energy supplies in the European Union, but that he was seeking an "urgent and detailed explanation" of the cuts from authorities in Belarus and Russia.

The impact of a short-term stoppage is likely to be minimal, as refineries maintain strategic oil stocks.

But the disruption to Russian oil supplies to Europe once again highlighted concerns about European energy reliance on Russia a year after its pricing dispute with Ukraine briefly affected EU imports of Russian natural gas.

Russian Deputy Trade and Economic Development Andrei Sharonov said that Moscow had been forced to suspend oil exports via the Druzhba, or Friendship, pipeline after disruptions to the flow of the pipeline he blamed on Minsk.

"We view this situation as force-majeure," he said in an interview with Russian news channel Vesti according to the ITAR-Tass news agency.

Germany and Poland said earlier Monday that Russian oil supplies through Belarus had halted, and Russia accused its neighbor of siphoning off oil destined for Europe since the weekend.

The 2,500-mile-long pipeline has the capacity to ship over 1.2 million barrels a day to eastern and central Europe and generally works at or close to its full capacity.

The pipeline has two branches, one of which runs to Poland and Germany, and the other to Ukraine, Hungary, Slovakia and the Czech Republic.

A Belarusian delegation left Monday evening for Moscow for urgent talks.

The head of the Russian state pipeline operator Transneft, Simon Vainshtok, said that Belarus, which is furious that Russia is demanding it pay new oil duties, had diverted 79,000 tons of oil so far.

Belneftekhim, a large state Belarusian industrial and energy holding company, ordered the suspension of the transit of oil to Germany, Poland and Ukraine, the Interfax and ITAR-Tass news agencies quoted unidentified officials from the pipeline's Belarusian section as saying.

But Alexei Kostyuchenko, head of the pipeline operator Gomeltransneft-Druzhba, denied this.

"The responsibility for the stoppage (in oil pumping) lies on the Russian side. Belarus never stopped pumping. All questions -- to the Russians," he told The Associated Press.

The Belarusian Foreign Ministry also denied blocking the transit of Russian oil, saying that Belarus was not responsible for a decrease of pressure in the pipeline.

But ministry spokesman Andrei Popov said, without elaborating, that Minsk had "to take measures to counter the economic damage to the Republic of Belarus from a shortage of important energy resources."

In Warsaw, the Economics Ministry said Monday that Poland was suffering disruptions in oil deliveries from the pipeline that crosses Belarus. Poland relies on the pipeline for around 96 percent of its oil consumption.

"This shows us once again that arguments among various countries of the former Soviet Union, between suppliers and transit countries, mean that these deliveries are unreliable from our perspective," Poland's deputy economy minister, Piotr Naimski, told TVN24 television.

The German government confirmed that the pipeline, which supplied two refineries in Germany, had been shut down. Russia is Germany's top supplier of oil, supplying roughly a third of its imports. About two-thirds of Russian oil for German consumers comes through the Druzhba pipeline.

Poland said it has about 80 days of reserves and Germany has 130 days, according to the EU.

MOL, Hungary's oil and gas company, said Monday that the crude oil shipments through the pipeline to Hungary have decreased and according to information from by MOL's partners, crude oil shipments have stopped altogether coming to Ukraine from Belarus.

The suspension of oil deliveries comes just days after Belarus and Russia reached a last-ditch agreement on gas prices that avoided a New Year's cutoff of natural gas for Belarusian consumers.

Belarus grudgingly accepted a doubling of the price it pays for imports of Russian natural gas, on which it depends for industry and home heating.

But the two former Soviet countries are now locked in a dispute over oil duties, with Russia determined to stop Belarus from re-exporting petroleum products made from processing Russian oil bought cheaply under the previous duty-free regime.

Jason Schenker, an economist with Wachovia Corp., said that if the dispute is not contained soon, it could cause overall oil prices to rise as sellers from other markets could take the opportunity to raise their own prices.

The inefficient, Soviet-style state-dominated economy in Belarus and authoritarian leader Alexander Lukashenko's popularity has depended heavily on subsidized Russian energy -- but analysts say the Kremlin has grown impatient at supporting his regime while receiving little in return.

Last week, Belarus announced it would charge an import duty of $45 per metric ton of Russian oil shipped to Western Europe in pipelines that cross Belarus. The move followed Russia's imposition of an export duty of $180 a ton on oil sold to Belarus.

Source:

http://www.businessweek.com/ap/financialnews/D8MH6Q0G0.htm