BELARUS NEWS AND ANALYSIS

DATE:

09/01/2007

Russia Oil Trade Dispute Angers Belarus

By HENRY MEYER

Belarus complained bitterly Tuesday that Russia was digging in its heels over a trade row that has disrupted Russian oil supplies to Germany and much of Eastern Europe, as European officials voiced criticism of the pipeline shutdown.

President Vladimir Putin ordered his Cabinet on Tuesday to consider a possible reduction in oil output apparently to avoid a backup in its refining capacity - an indication the standoff could drag on.

Russia stopped pumping oil to Europe on Monday via the Druzhba, or Friendship, pipeline that crosses Belarus, accusing its neighbor of siphoning off oil.

A delegation led by Belarusian Vice-Premier Andrei Kobyakov flew to Moscow on Tuesday to find a solution to the oil stoppage, which has affected Ukraine, Germany, Poland, Hungary, the Czech Republic and Slovakia.

But Belarusian Deputy Foreign Ministry Andrei Yevdochenko said talks had not started yet, adding that Russia should not be making unreasonable demands.

"Everything should be placed on the negotiation table without any preliminary conditions or preliminary demands. We are ready for dialogue," Yevdochenko told a news conference at the Belarusian Embassy.

Russian officials have said talks could begin only if Belarus annuls an oil transit fee it announced in retaliation for Russia's imposition of a hefty duty on exports of oil to Belarus.

"Unfortunately, today's experience has shown that the Russian side is not prepared - or is preparing for negotiations...," said Valery Sadokho, the top trade representative at the Belarusian Embassy.

Taking a tough stance, Putin ordered ministers at a Cabinet meeting Tuesday to "discuss with Russian companies the possibility of reducing oil output in connection to problems linked to the transit of oil through Belarus."

Russia has a limited capacity for refining oil and would have to cut crude output if its exports decrease suddenly.

The disruption of Russian oil exports to Europe once again highlighted concerns about the reliability of Russia as an energy supplier, a year after its price dispute with Ukraine led to gas cutoff for Kiev and brief shortages of Russian natural gas pumped to several EU nations.

Russia currently supplies a quarter of the EU's oil and over two-fifths of its gas consumption.

In unusually harsh language, EU Commission President Jose Manuel Barroso and German Chancellor Angela Merkel said Tuesday that it was "not acceptable" for energy transit or supplier countries to halt deliveries without consultation - a clear reference to the unannounced cutoff of oil from Russia through Belarus.

The Paris-based International Energy Agency also urged both sides Tuesday to reach "a quick and clear resolution to the disruption," although it said the stoppage did not threaten supplies immediately since EU refineries maintain strategic oil stocks.

The European Union has called for a rapid resumption of oil deliveries and EU energy chief Andris Piebalgs planned to convene a meeting Thursday of the bloc's Oil Supply Group to evaluate the situation.

The 4,000-kilometer-long (2,500-mile-long) pipeline pumps an average of 1.2 million barrels a day to eastern and central Europe. The pipeline has two branches, one of which runs to Poland and Germany, the other to Ukraine, Hungary, Slovakia and the Czech Republic.

Poland relies on the pipeline for around 96 percent of its oil consumption. 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.

The current dispute came just days after Belarus and Russia reached a last-ditch agreement on a doubling of gas prices that avoided a New Year's cutoff of natural gas for Belarusian consumers and potential supply shortages in Western Europe.

Russian Finance Minister Alexei Kudrin told the Cabinet meeting that the Russian budget was losing US$3.5-$4 billion (euro2.7-3.1billion) dollars a year because of the previous duty free regime for Belarus oil imports.

The two former Soviet nations are locked in a dispute over a Russian decision to impose duties on oil exports to Belarus. Once close allies, relations have grown increasingly tense amid impatience in Moscow at subsidizing the economy of Belarus' isolated regime through cheap energy.

Source:

http://www.forbes.com/feeds/ap/2007/01/09/ap3312855.html