BELARUS NEWS AND ANALYSIS

DATE:

10/01/2007

Putin Considers Diverting Oil Around Belarus

By MICHAEL SCHWIRTZ

MOSCOW, Jan. 9 - An unyielding President Vladimir V. Putin raised the possibility on Tuesday of diverting oil transit routes away from Belarus, a day after Moscow cut off pipeline deliveries of crude headed to Europe through the country.

Such a change, which would be years in the making, would cut Belarus out of any role in the transshipment of oil to Europe without offering Western European customers any immediate assurance that their supplies were reliable.

The two-day cutoff has affected supplies to Ukraine, Germany, Poland, Hungary, the Czech Republic and Slovakia. It is the second stoppage of Russian energy supplies to Europe since last winter, when natural gas shipments were briefly shut down during a gas pricing dispute between Russia and Ukraine.

In a meeting with his cabinet ministers Mr. Putin also urged the government to discuss with Russian companies "the possibility of scaling down the extraction of oil, given problems in transiting crude across Belarus." This indicated that Russia may not have adequate storage for oil that is being produced but not exported.

With the new year, Russia began charging Belarus $100 per thousand cubic meters of gas, more than double the old rate of $46. It also imposed a duty of $180 a ton on oil that officials said Belarus was obtaining at subsidized rates and reselling on world markets. In response, Minsk slapped a transshipment fee of $45 a ton on oil coursing through Belarus in the Druzhba pipeline to Europe.

On Monday, officials in Moscow accused Belarus of siphoning about 79,000 tons of Russian oil bound for Europe and then shut down the pipeline entirely.

Normally, the 2,500-mile-long pipeline pumps 1.2 million barrels a day to eastern and central Europe, with one arm running to Poland and Germany and the other to Ukraine, Hungary, Slovakia and the Czech Republic.

In general terms, Mr. Putin told his cabinet ministers to do whatever was necessary to guarantee the interests of Russian companies as well as the interests of Western countries dependent on Russian energy supplies.

He also said that the government must continue negotiations with Russia's "Belarusian partners," now estranged but once so close the countries spoke seriously of merging in a unitary state.

Officials from Belarus flew to Moscow to negotiate, and one delegation submitted a draft agreement to the Russian Economic Development Ministry, the Interfax news agency reported. According to Belarus's deputy economic minister, Vladimir A. Naidunov, the agreement could "make it possible to mutually settle issues concerned with levying customs duties on oil and with duties for oil transportation through Belarus."

It was unclear throughout the day when or if negotiations would begin, as Russian officials attempted to formulate their starting positions. German O. Gref, Russia's minister for economic development and trade, told reporters Tuesday evening that Russia would start talks only after Belarus lifted transit duties and resumed oil transit.

Russia's intransigence irritated Western European leaders, particularly the German chancellor, Angela Merkel, who said it was "not acceptable" for energy suppliers to cut off shipments without consultation, and who renewed her call for diversification of supplies.

But few analysts expected the standoff to last more than a few days. "Belarus's reserves of cheap oil will last a few days, a week at most," Yaroslav Romanchuk, an economist in Belarus, told The Associated Press. "After that, it will have to buy oil taking into account Russian export duties."

At a news conference, the Russian industry and energy minister, Viktor B. Khristenko, said that, given time, Russia would be able to reroute oil around Belarus, possibly by increasing the capacity of the Baltic pipeline system or hurrying the completion of the East Siberia-Pacific Ocean pipeline. In the short term, he said, Russia might have to ship more oil by rail and river. "If these measures aren't enough, it could be necessary to reduce oil output," he said.

Russian equity markets slid sharply on the news, with the RTS index dropping 6.4 percent. Shares in OAO Lukoil, a major oil producer, led the way, dropping 9 percent.

Source:

http://www.nytimes.com/2007/01/09/world/europe/09cnd-belarus.html?hp&ex=1168405200&en=fc5ca150ffdd9a48&ei=5094&partner=homepage

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