Russia, Belarus oil row still on after PMs meet

By Darya Korsunskaya and Jessica Bachman

MOSCOW, Jan 20 (Reuters) - Russia's Prime Minister Vladimir Putin and his Belarussian counterpart failed to put an end to an oil standoff on Thursday that has cut oil product exports to Europe, but supplies are expected to resume in upcoming days.

"After the talks with Vladimir Vladimirovich (Putin), we ordered our deputy prime ministers to ... resolve the outstanding issues of the fuel-energy complex in coming days," Belarus Prime Minister Mikhail Myasnikovich told reporters after the meeting Putin in Moscow.

The spat has already resulted in Belarus, whose refineries have a daily capacity of 360,000 barrels, suspending diesel exports to Europe, European traders say, although Belarus insists supplies have not been cut.

Russian crude oil flows to Poland and Germany via Belarus along the Druzhba pipeline remain intact.

A member of the Belarus delegation in Moscow for oil talks said the country expects oil supplies to resume next week, the Belarus newswire BelTA reported.

Russia used to sell oil to Minsk at a steep discount, but in recent years has sought to bring the price more in line with market rates. At the same time Belarus has also been hiking the transit fee it charges Moscow to carry its crude to Europe.

The persistent pricing dispute has played out against a background of souring relations between the two neighbours, with Moscow irritated by Minsk's overtures to the West to secure an easing of sanctions over longtime President Alexander Lukashenko's record on human rights and democracy.

Moscow put pressure on Lukashenko last year with tough criticism but shortly before the election agreed to drop duties on oil exports to Belarus to keep its influence. Russia sees ex-Soviet Belarus as a buffer against an expanding NATO.

The Belarus state oil company has said that it has enough oil to last it until the end of January.


Russian companies stopped supplying crude oil to Belarussian refineries on Jan. 1 after Moscow and Minsk failed to reach a pricing agreement, but Putin said the Russian government stands by its promise to provide the Belarussian economy with $4.1 billion in subsidies through cheaper energy supplies.

"We have a certain kind of agreement that we will aim to provide the Belarussian economy's oil sector with subsidies that are no less than (in previous years)," Putin said.

Myasnikovich said that there are alternatives to achieve the subsidies other than changing the price of oil supplies for Belarus, which Russian companies are gunning for.

"We have to work our way back from this sum ($4.1 billion) and figure out how we are going to resolve it, through prices or other mechanisms," said Myasnikovich.

Diesel prices have spiked and gasoil spot prices have risen almost 7 percent from the start of the year to $822.75 per tonne.

Putin, the most influential political figure in Russia, has previously brokered gas deals with Ukraine and was instrumental in a similar agreement with Belarus.

In Minsk, the final decision rests with Lukashenko, who on Friday is due to be inaugurated to a new five-year term after a December election marred by a violent crackdown on street protests and the arrests of opposition candidates.

Belarus exports about 2.4 million tonnes of diesel per year, mainly to northern Europe. The volumes amount to less than one per cent of Europe's overall diesel consumption but for Germany alone it represents about 8 percent.

Belarus and Ukraine are the transit countries through which Moscow ships oil to Europe and Russia has in the past halted supplies when unable to reach deals with its neighbours.

"The transit via Belarus continues, though refineries in Belarus are not getting Russian oil for now," Igor Dyomin, spokesman for Russian oil pipeline monopoly Transneft, told Reuters on Wednesday.

Russian firms want a $45 per tonne price rise as Belarus will increase transit tariffs by 12.5 percent from Feb. 1 and crude oil prices on world markets have hit two-year highs.

"The oil reserves at Belarussian refineries are very limited. There is no other option but to restart deliveries. This could be done quickly as the transit supply was never interrupted," a source in the Russian Energy Ministry said.

Russia had been scheduled to deliver 1.5 million tonnes of oil to Belarus in January. (Additional reporting by Vladimir Soldatkin and Andrei Makhovsky; editing by Matthew Jones and Jason Neely)


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