Russia and Belarus facing 'full-scale gas war'

Dmitry Zhdannikov, Reuters Wednesday, Jun. 23, 2010

MOSCOW -- Belarus threatened on Wednesday to halt all Russian oil and gas flows to Europe if Moscow does not repay its debt for gas transit, raising the stakes in a dispute which the EU said was already affecting a member.

"I demand that Gazprom pay US$260-million to Beltransgaz by 10:00 (0700 GMT) tomorrow," First Deputy Prime Minister Vladimir Semashko said.

"If it is not done we will be forced to stop providing services for all hydrocarbon transit," he added.

The European Union said Lithuania was receiving 40% less gas than usual due to the dispute while other Russian gas customers - such as Poland and Germany - have said they have not seen a reduction in supplies yet.

The dispute has been escalating since Monday, when Russia announced the first round of cuts, and on Tuesday Belarussian President Alexander Lukashenko said the two nations were facing a full-scale "gas war".

Russia, the world's largest energy exporter, supplies Europe with 25% of gas needs, with four-fifths of that flowing via Ukraine and one-fifth via Belarus. Russia also supplies around 1 million barrels per day of oil to Germany and Poland via Belarus.

Ukraine has already promised to ship more Russian gas to Europe to help Moscow plug the potential gap in supplies via Belarus, while analysts have said the impact on consumers should not be big given low gas consumption in Europe at the moment.

The close ties between Russia and Belarus have been increasingly strained as Mr. Lukashenko has sought to use Russia's eagerness to maintain an ally on its Western flank to pressure Moscow not to scrap longstanding economic subsidies.

Belarus is to hold presidential elections next year and Mr. Lukashenko, who has ruled the country since 1994 in what analysts describe as a Soviet authoritarian style, has pledged to raise state wages and salaries.

Belarus pays the lowest price among Russian gas customers and has bridled at recent increases, saying it should pay less for oil and gas if Moscow is serious about close ties. Mr. Lukashenko has courted the West and sought other energy sources.

Relations have soured further since Russia and Belarus failed to agree on unified customs rules and Mr. Lukashenko gave refuge to ousted Kyrgyz President Kurmanbek Bakiyev, despite Moscow's support for the new Kyrgyz leadership.

Mr. Semashko said Belarus had paid all its outstanding debt to Gazprom of US$187-million for gas deliveries in January-April, which sparked the conflict when Gazprom demanded repayment last week and began to gradually reduce supplies to Minsk.

Earlier on Wednesday, Gazprom cut supplies to Belarus by more than a half but said gas was flowing smoothly to Europe despite Minsk's threats to shut down transit pipelines. Gazprom also acknowledges it owes Minsk money for gas transit but says Belarus has effectively blocked payments.

Previous pricing disputes with Minsk led to oil supply cuts, with Poland and Germany being affected most as they receive large volumes of crude and gas from Russia via Belarus.

A similar standoff with Kiev halted much larger Russian gas supplies across Ukraine for almost two weeks in January 2009, leaving many Europeans without fuel during a bitter cold snap.

Russia and Ukraine have had two major standoffs over gas since 2005 amid badly strained relations between the Kremlin and Ukraine's pro-Western former President Viktor Yushchenko.

Ties have dramatically improved since Mr. Yushchenko was replaced by Viktor Yanukovich, seen as much more loyal to Moscow. He swiftly agreed new gas and military base deals with the Kremlin after taking power earlier this year.


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