BELARUS NEWS AND ANALYSIS

DATE:

10/01/2007

Belarus climbs down, Russian oil may flow soon

By Dmitry Zhdannikov and Andrei Makhovsky

MOSCOW/MINSK, Jan 10 (Reuters) - Russia and Belarus neared a deal on Wednesday to resume oil supplies via a key export pipeline, as Minsk claimed a compromise with Moscow and European customers said crude could start flowing within hours.

Belarussian President Alexander Lukashenko reached an understanding to resolve the three-day-old halt to the Druzhba ('Friendship') pipeline during a telephone call with Kremlin leader Vladimir Putin, Lukashenko's office said.

"As a result of the discussion, a compromise was found which will make it possible to unblock this dead-end situation," it said in a statement.

Belarussian Prime Minister Sergei Sidorsky said Minsk will revoke an oil transit duty it imposed last week, meeting Russia's main demand for ending a bitter trade dispute.

Sidorsky will fly to Moscow on Thursday and he said he expected the Russian side to respond by lifting the trade restrictions it has imposed on Belarus.

The Kremlin confirmed that the two presidents had discussed energy issues on the phone at Belarus' request but did not mention an agreement. A top Russian economic adviser, Igor Shuvalov, was due to brief reporters later.

Moscow angered the European Union by cutting off all oil supplies on Sunday night through Druzhba, which carries 1.5 million barrels per day of crude oil from Russia through Belarus to Europe -- about 10 percent of the EU's needs.

EU leaders said the move made it harder to trust Russia as an energy supplier and berated Moscow and Minsk for failing to consult key customers like Germany before turning off the taps.

"The cut in oil supplies from Russia is unacceptable...This raises a problem, a real problem of credibility. We would like to guarantee that this does not happen in the future," European Commission President Jose Manuel Barroso said.

Moscow said it was forced to act because Belarus was siphoning off oil from the pipeline, which serves Poland, Germany, Slovakia, Hungary, and the Czech Republic.

CRUDE TO FLOW SOON

Belarus took the oil as payment in kind for its transit tax, which in turn was a retaliation by Minsk against a duty Russia imposed on oil exports to Belarus.

Minsk caved into the pressure from Moscow after Putin said on Tuesday Russian oil firms should prepare to cut production if no compromise was reached over Druzhba.

Russian Energy Minister Viktor Khristenko met oil bosses to discuss the cuts on Wednesday morning. But industry sources said a round of talks sheduled for Wednesday evening was put on hold after the presidents spoke.

Slovak pipeline operator Transpetrol said it expected full supplies through Druzhba to resume by 1430 GMT, citing an agreement between Russia and Belarus.

But Russia's pipeline operator Transneft said it had no plans to resume pumping operations ahead of Belarus.

The dispute between the two erstwhile allies started last year when Russia demanded that Belarus paid more for its heavily subsidised gas supplies and gave up control of a key gas pipeline running across its territory.

Just before New Year, Belarus reluctantly agreed to pay just over twice as much for its gas and to sell a 50 percent stake in the pipeline to Russia's pipeline monopoly Gazprom.

Many analysts say Belarus' newly imposed oil transit tax, which triggered the Druzhba closure, was Minsk's reaction to the December gas agreement.

"The disruption in oil supplies has yet again undermined Russia's efforts to establish itself as a reliable source of supplies to Europe," said Yaroslav Lissovolik from Deutsche UFG.

Source:

http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2007-01-10T151936Z_01_L10261962_RTRIDST_0_RUSSIA-PIPELINE-UPDATE-4-PICTURE.XML&rpc=66&type=qcna