BELARUS NEWS AND ANALYSIS

DATE:

08/01/2007

WRAPUP 1-Russia halts oil exports to Belarus; Europe hit

By Douglas Busvine and Natalia Reiter

MOSCOW/WARSAW, Jan 8 (Reuters) - Russia, accusing Belarus of stealing oil from a major pipeline, has shut off oil exports to its western neighbour, halting supplies to Poland and Germany and threatening wider disruptions in central Europe.

Russia's pipeline monopoly Transneft (TRNF_p.RTS: Quote, Profile , Research) said on Monday it was forced to act because Minsk had been siphoning off oil illegally from the Druzhba ('Friendship') pipeline system.

The oil supply cut was reminiscent of a stand-off last year between Russia and Ukraine that hit gas supplies to Europe. It escalates a tit-for-tat dispute between Russia and longtime ally Belarus, who have imposed punitive oil levies on each other.

The European Union demanded an "urgent and detailed" explanation, a spokesman for Energy Commissioner Andris Piebalgs said. Europe is heavily reliant on energy powerhouse Russia for its oil and gas and extremely vulnerable to Russian supply cuts.

"The Belarussian side began taking transit oil as payment in kind for a new duty it had illegally imposed," Transneft Vice-President Sergei Grigoryev told Reuters.

"We therefore reduced transit supplies, equal to the amount being taken. We then reached the point where we had to stop supplies completely."

Belarus had until recently served as a loyal client state of Russia, and the two countries have discussed launching a common currency as a precursor to creating a political union.

But Moscow's recent decisions to impose duties on oil sales to its neighbour, double gas prices and ban sugar imports have led President Alexander Lukashenko to turn against his patron, Kremlin chief Vladimir Putin.

Lukashenko -- branded Europe's last dictator by the United States -- last week slapped a $45 per tonne transit fee on Russian oil pumped via Belarus.

Russian Deputy Economy Minister Andrei Sharonov said he saw little chance of a de-escalation. "It looks like we are heading into a trade war," he told Ekho Moskvy radio. Sharonov ruled out talks unless Belarus scraps its transit fee first.

RIPPLES ACROSS CENTRAL EUROPE

Poland, which is served by the northern branch of the Druzhba pipeline, reported oil shipments had stopped overnight.

Europe's biggest economy Germany later confirmed refineries in its ex-communist east were also cut off

Druzhba forks on Belarussian territory, and countries served by its southern spur -- including Hungary and Slovakia -- said they expected their supplies to dry up on Monday.

Belarus said it was not to blame for the supply cut.

Russia is the world's second-largest oil exporter after Saudi Arabia. Around 1.8 million barrels per day of Urals crude flow via the Druzhba pipeline system, built in the 1960s to tie communist eastern Europe to Soviet energy supplies.

Transneft head Semyon Vainshtok was quoted earlier by Russian news agencies as saying that the pipeline operator was doing all it could to reroute supplies to European customers.

STOCKPILES

Supplies were cut to PKN's (PKNA.WA: Quote, Profile , Research) Plock refinery in Poland, and in Germany to Total's (TOTF.PA: Quote, Profile , Research) Leuna unit and Schwedt, owned by a group including Ruhr Oel GmbH, Shell Deutschland Oil GmbH (RDSa.L: Quote, Profile , Research) and AET.

German Economy Minister Michael Glos expressed concern at the pipeline closure, adding he expected deliveries to resume completely as soon as possible. Germany gets 20 million tonnes a year, or one-fifth of its oil imports, via Druzhba.

But Poland's government was less optimistic. Deputy Economy Minister Piotr Naimski said there was no sign from the Russian or Belarussian sides as to when Druzhba might resume operations.

In Brussels, a spokesman for EU Energy Commissioner Piebalgs said: "We have contacted the Russian and Belarussian authorities and demanded an urgent and detailed explanation for this disruption."

German and Polish officials moved to give assurances that oil refiners had ample stockpiles of crude oil to tide them over. Poland has enough crude in storage to cover 80 days' supply, while Total said Leuna had "abundant" reserves.

European oil markets rose, with Brent crude futures gaining by $1.08 to $56.71 per barrel in London. But oil traders appeared relaxed, for now at least, given ample oil in storage.

"I don't see any market reaction yet, although it'll probably come," one fuel oil trader said. "It's a bit of a shock right now, but the market is not responding that fast; we've got used to this kind of thing."

For a FACTBOX on the Druzhba pipeline click on [ID:nL08812526]

(additional reporting by Piotr Skolimowski and Chris Johnson in Warsaw, Dmitri Zhadnnikov in Moscow, Andrei Makhovsky in Minsk, Noah Barkin in Berlin, Keyvan Hedvat in London)

Source:

http://today.reuters.com/news/articleinvesting.aspx?view=CN&storyID=2007-01-08T153224Z_01_L08827603_RTRIDST_0_RUSSIA-PIPELINE-WRAPUP-1.XML&rpc=66&type=qcna