Russia to trigger oil standoff in Europe (Jan 8, 2007)

Jan 8, 2007 (BBC and other sources)

Russia oil row hits Europe supply. Russia has cut oil supplies to Poland, Germany and Ukraine amid a trade row with its neighbour Belarus, BBC reports. Hungary is also hit.

The Russian state pipeline operator, ‘Transneft’, said it cut supplies on the ‘Druzhba’ pipeline to prevent Belarus illegally siphoning off oil.

The European Commission said the cuts posed no immediate risk to European supplies but it was seeking an urgent explanation from Belarus and Russia.

Belarus has been in dispute with Russia over the price of Russian oil and gas.

Minsk says Russia has not been paying a transit tax for moving oil through Belarus, imposed after Russia doubled the price it charges Belarus for gas supplies.

Exports were halted after Belarus began legal action against Russia for failure to pay the new oil shipment tax.

‘Transneft’ later said it had been forced to cut off supplies through the ‘Druzhba’ pipeline after Belarus began siphoning off oil as payment in kind for the duties.

The Russian firm has so far refused to pay the oil export taxes as it claims the charges are illegal.



Azerbaijan cut oil export to Russia

Also today, Azerbaijan has separately suspended oil exports to Russia following a pricing dispute with Russian state-backed oil giant ‘Gazprom’.

Azerbaijani crude and gas are operated by some U.S. companies.

On another hand, Azerbaijani low-priced natural gas is planned to deliver the ‘Nabucco’ pipeline project – which EU supports for supplying Central Europe (via Turkey, Bulgaria, Romania, Hungary and Austria).

The ‘Nabucco’ project is opposed by Russia – which wants to upgrade its ‘Blue Stream’ pipeline to Turkey and eventually build a new pipeline to pass through the South-Slavic states in the Balkans (namely Bulgaria, Serbia, Croatia and Slovenia) to end in the North Italy. Such a project would definitely sidewalk Romania.



Supply issues

Neither Germany nor Poland is in any immediate danger of experiencing oil shortages, as both maintain substantial reserves.

But BBC economics correspondent Andrew Walker says the suspension is an uncomfortable reminder to Europe of the large and growing role that Russia has in meeting its energy needs.

Poland's Deputy Economy Minister, Piotr Nalmski, said his country had enough oil reserves for 80 days, but he attacked the decision to halt exports.

"This shows us once again that arguments among various countries of the former Soviet Union, between suppliers and transit countries, mean that these deliveries are unreliable," he told the BBC.


Hungary’s oil and gas group MOL has also reported a drop in pressure on the Druzhba oil pipeline, which supplies Russian oil to Europe via Belarus, and is preparing for disruption to deliveries overnight.

Janos Koka, the Hungarian minister for economic affairs, said that the country had received only half of the 22,000 tonnes of Russian oil it normally receives each day. Today, the pipeline had dried up completely, he also said.

He said that in this case, technical stocks would last 24 hours, after which point permission could be given to tap into strategic reserves.

Hungarian MOL said it has 90 days' worth of reserves. Afterwards, Hungary would need to switch to the Adriatic pipeline.

Koka added that he had been in touch with other countries hit by disruptions in the supply of Russian oil via the Druzhba pipeline -- Germany, Poland, Slovakia, the Czech Republic and Ukraine.

The Hungarian ministry for foreign affairs said it had called a meeting with the Russian and Belarussian ambassadors in order to ask for explanations concerning the drop in pressure and possible cut-off.

A spokesperson for the ministry said that while Hungary did not wish to become involved in the dispute between Russia and Belarus, it expected to receive the full supplies that were due to it.


Last year deliveries of Russian natural gas to much of Western Europe during a dispute over pricing between Russia and Ukraine.

The European Union is set to discuss energy supply issues as part of a meeting on climate change and energy policy scheduled for Wednesday.



European concern

The European Commission said it was investigating whether the Russian move would have an impact on another branch of the pipeline, which runs to Slovakia and south-east Europe.

"I have also contacted our Russian and Belarusian authorities calling on them to provide an urgent and detailed explanation of the causes of this disruption," said European Energy Commissioner Andris Piebalgs.

Commission officials plan to look at whether European Union members will have to draw on strategic stockpiles to ensure their supplies, he added.

German Economy Minister Michael Glos said he viewed the pipeline closure with concern and called on Russia and Belarus to meet their energy transit and delivery responsibilities "as soon as possible".

Officials in Minsk have declined to comment.



Row intensifies

The decision to shut down the ‘Druzhba’ pipeline is the latest twist in an energy row between Belarus and Moscow that began when Russian energy giant ‘Gazprom’ forced Belarus to accept a huge increase in the price of Russian gas.

Last week Belarus said it would charge Russia $45 (£23) per tonne of oil that passed through its country.

News of the disruption to supplies was a key factor helping to drive oil prices through the $57-a-barrel barrier after falling to around the $55 level last week.

US light sweet crude rose 89 cents to $57.20 in New York trade, while in the UK Brent crude stood at $56.71 - up $1.08.

News that Saudi Arabia, the world's largest oil producer, planned to cut output by 158,000 barrels a day also helped to drive crude prices higher.



Romania Report – according to BBC report and other sources