By NATALIYA VASILYEVA
By The Associated Press
MOSCOW (AP) - Russia has agreed to scrap duties on oil it supplies to Belarus starting next year, and Minsk will pass on export duties on products made from the Russian oil to Moscow, the neighbors' presidents said Thursday.
Talks broke down on Wednesday, fueling fears of a dispute that might hit energy supplies to Europe. Europe is thought to get around 20 million tons of crude oil through Belarus annually, and has lost out on energy supplies in the past due to Russia's spats with its neighbors.
Russian officials are playing the deal as a $4 billion gift to the Belarusian economy, agreed upon a week before presidential elections in Belarus.
Belarusian President Alexander Lukashenko called the deal "a major step forward".
Moscow earlier insisted that it would scrap duties only for oil supplied to Minsk for its domestic needs, but has now agreed to broaden that to all oil exports to Belarus.
Russia's Economic Development Minister Elvira Nabiullina told Russian news agencies that Moscow would not immediately benefit financially from the deal.
The authoritarian Lukashenko is a candidate is next week's elections, and is unlikely to allow rivals a serious chance to end his 16-year reign as president.
Thursday's oil deal was inked as Russian, Belarus and Kazakhstan agreed to create a fully fledged common economic space by 2012 after the three nations set up a customs union this year. Lukashenko said the deal creates "economically one country of 170 million people."
Although the agreement will do away with all trade barriers between the countries, there was no mention of a common currency.
Medvedev said after the signing ceremony that the new economic bloc is open to new members. Lukashenko said that "the European Union is already thinking about building relations with us" but insisted that it is the EU, not the three nations, that should adapt to the union's terms if it wants to join. He suggested the bloc adopt the name "Euroasian Union."