BELARUS NEWS AND ANALYSIS

DATE:

09/01/2007

Belarus and Russia Dispute Cause of Oil Cutoff

By STEVEN LEE MYERS

MOSCOW, Jan. 8 - Supplies of Russian crude oil headed to European markets came to a halt overnight, officials said Monday, in the latest manifestation of rapidly deteriorating relations between Russia and Belarus.

The head of Russia's oil pipeline monopoly accused Belarus of illegally siphoning oil beginning Saturday in an escalating dispute over duties and transit fees. Belarus's foreign ministry acknowledged the halt but denied responsibility, suggesting that the Russians had instead caused the stoppage at their common border.

Regardless of the cause, the disruption along the Druzhba, or Friendship, pipeline affected supplies of crude oil headed to Poland, Germany and Ukraine. In the short term, at least, the halt should have a minimal effect, because refineries in those countries maintain reserves. In the longer term as well, the disruption is not as threatening as a shut-off of natural gas, because alternative sources of oil are more readily available.

Still, a prolonged disruption could be worrisome. Oil prices rose on the news, and the dispute rekindled concerns in Europe about the reliability of energy supplies from Russia.

"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 economics minister, Piotr Naimski, said in televised remarks, according to The Associated Press.

The shutdown of Druzhba, one of the highest-capacity pipelines in the world, took place a week after Russia and Belarus negotiated a last-minute agreement that sharply raised the price Belarus would have to pay for natural gas. The deal came after brinkmanship by each side that raised the specter of disruptions of natural gas deliveries across Europe, like one that followed a dispute between Ukraine and Russia in 2006.

Belarus, led by an autocratic president, Aleksandr G. Lukashenko, has reacted furiously to the terms of that deal and to Russia's tactics in the talks that led to it. Last week, Belarus called Russia's conduct shameless.

Russia has responded by saying that it is simply raising the costs of oil and gas to market prices. Belarus and other former republics of the Soviet Union have long bought oil and gas at a discount, compared with European customers.

"Belarus has cast prudence to the wind," Andrei V. Sharonov, a deputy economic development minister, said in remarks on the Moscow radio station Ekho Moskvy, referring to what he, too, called the illegal siphoning of oil. "This looks like a trade war."

He later said that Russia would suspend all oil shipments through Belarus, blaming it for the initial disruptions. His remarks suggested that the disruption could last indefinitely.

For the last decade, Russia and Belarus, two countries bound by history and deep ethnic, cultural and social ties, have moved haltingly toward the creation of a union, with a common currency and even, ultimately, the creation of a single unified state, as negotiated in a 1996 treaty between Mr. Lukashenko and President Boris N. Yeltsin.

The union has never come to fruition under President Vladimir V. Putin. In the past month, the two countries have seemed instead to be negotiating the terms of their divorce, which, like many, is becoming nasty.

Beginning New Year's Day, Russia began charging Belarus $100 per thousand cubic meters of natural gas, compared with the $46 it charged last year. The price is to increase steadily to the level charged in Europe - now $265 on average - by 2011.

As those negotiations dragged on bitterly, Russia also imposed a separate duty of $180 a ton on oil it sold to Belarus, which has been sold at steeply subsidized prices. Mr. Lukashenko's government responded to the oil duty last week by announcing a $45 a metric ton fee on shipping oil across Belarus on its way to other parts of Europe.

These are the fees are at the heart of the dispute that has shut down the pipeline.

Mr. Sharonov, in his radio interview, said Mr. Lukashenko's government had begun seizing the oil as payment for the transit fee.

The head of Russia's pipeline monopoly, Semyon M. Vainshtok, said in a statement that Belarus had siphoned 79,900 metric tons of oil since Saturday "without warning anyone."

He said, "Transit is a sacred cow," and vowed to use other means of transport to supply customers in Europe.

On Sunday, prosecutors in Belarus filed suit against Mr. Vainshtok, accusing him of having violated customs duties by not paying the new transit fee. A hearing scheduled for Monday, however, was canceled.

In Belarus, there were conflicting reports about what had unfolded. While the foreign ministry denied responsibility, an official from the Druzhba pipeline told Russian news agencies that operations had been halted on orders from Belneftekhim, the Belarus pipeline monopoly. Neither the ministry nor the companies would elaborate.

Belarus has used its cheap supplies of oil and gas to shore up a Soviet-style economy and earn hard currency, in the case of oil, by exporting refined products at world prices. For Mr. Lukashenko's government, the changing economics could weaken his iron control on the country of 10 million.

"The Belarussian people may not realize the extent to which they have been propped up by Russian energy, the extent to which the Belarussian miracle that Lukashenko talks about was built on legs of clay," said Rory MacFarquhar, an economist with Goldman Sachs in Moscow.

The impact in Belarus, where the news media is tightly controlled by the state, remains uncertain.

Pavel Daneyko, the director of the Institute for Privatization and Management, a business consultancy in Minsk, the capital of Belarus, said Mr. Lukashenko's government faced two difficult options: a liberalization of the country's economy or a populist propaganda war against Russia.

"If there is a clear war with Russia," he said by telephone, "then the society may be able to weather the situation."

Source:

http://www.nytimes.com/2007/01/09/world/europe/09belarus.html?em&ex=1168491600&en=4199a7513a96031f&ei=5087%0A