BELARUS NEWS AND ANALYSIS

DATE:

08/01/2007

Belarus's Dispute With Russia Escalates

Chris Noon

The fight between Moscow and Minsk over spigot supremacy in Eastern Europe has just escalated.

Belarus has just halted Russian oil supplies to Poland, Germany and Ukraine. Disruptions hit Transneft's Druzhba pipeline Sunday night before supplies were severed completely at Poland's border with Belarus, Polish officials said. Transneft is a Russian state-owned business, which owns the largest pipeline system in the world with a total of almost 50,000 kilometers.

"Oil supplies via the Druzhba pipeline to Poland and Germany were halted overnight. We sent a letter to Belarus asking for explanations," said Tomasz Zakrzewski, a spokesman for Polish pipeline operator PERN.

Problems arose after Belarus began legal action against Transneft for failure to pay a new oil shipment tax on oil supplies piped through its territory. Belarus, angry over Russia imposing a duty on oil exports to Belarus and over Russia's doubling its price for natural gas from $47 to $100, announced last Wednesday that it would impose an import duty of $45 per metric ton of oil that Russia ships across its territory.

Minsk has argued that Moscow's duty on oil exports makes Russian oil too expensive to buy. Belarus has long profited by importing Russian oil duty-free, processing it and selling the products abroad. Russia, which always looked unlikely to cough up the new tit-for-tat tax, has claimed Belarus' actions threaten supplies to Europe.

Russian President Vladimir Putin has apparently grown weary of propping up Belarus' authoritarian President Alexander Lukashenko, who is unwilling to cede more control over his nation and its economy to the Kremlin.

Transneft has claimed it was doing all it could to boost supplies from via other routes. Further reports suggested that the company had also accused Belarus of siphoning off Russian oil destined for Europe from the pipeline.

Will it get to the point where Europeans go without oil? Global Insight's Russia/CIS analyst, Natalia Leshchenko, doesn't think so. "The EU obliges member countries to keep 66 days-worth of oil in their refineries--some sort of agreement will certainly be reached by then. It's not that traumatic," Leshchenko said.

Russia transports about a fifth of its oil exports--or one million barrels per day--through Belarus, mainly to refiners in Poland and Germany. Poland's deputy economy minister has said that his country has sufficient oil reserves for 80 days.

"Belarus wants Russia to reduce its oil export tax so it can minimize its own costs. Russia's oil export tax is costing them $1.8 billion per year," Leshchenko said.

Leshchenko believes Belarus has more bargaining power than the Russians. "The Belarussians are outcasts in Europe anyway, they never applied for EU membership. They are free to act and do as they wish. They often victimize themselves. There's far more at stake for Russia," she told Forbes.com.

Source:

http://www.forbes.com/energy/2007/01/08/belarus-russia-transneft-cx_cn_0108belarus.html