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Russian Oil To Flow To Belarus Despite Failed Deal

Belarusian workers at a pump station on the Druzhba pipeline system (file photo)

Belarusian workers at a pump station on the Druzhba pipeline system (file photo)

MOSCOW (Reuters) -- Russia has no plans to cut oil supplies to Belarus from today despite failing to agree terms of 2010 deliveries, a Russian government source said, adding that talks would resume in early January.

The comment will be seen as a relief in Germany and Poland, which experienced major cuts in Russian crude oil supplies in January 2007 along a pipeline running via Belarus because of a similar dispute between Moscow and Minsk.

"The talks will be continued. The Russian delegation made a series of proposals which correspond to market conditions and the ball is in the Belarussian delegation's court," the source said, on condition of anonymity.

Asked whether oil supplies to Belarus would be cut, he said: "Everything will continue as before. Nothing will be stopped."

Russia and Belarus had plans to create a union state with one currency and customs rules but the project never materialized as relations between the two states chilled.

Moscow has often blamed Belarussian President Aleksandr Lukashenka, who has been running the country for over a decade along Soviet-style command lines, for failing to keep its promises, including selling top assets to Russian firms.

The unease in relations this year also coincided with steps by Lukashenka -- often criticized by human rights organisations for his treatment of opposition and media -- to improve relations with the West.

Switching To Market Terms

European politicians have repeatedly accused the Kremlin of using its energy might as a tool of intimidation of its neighbours, be it gas or oil deals with Belarus or Ukraine.

Russia, the world's largest oil and gas producer, says it is simply switching gradually to market terms after subsidising neighbors with cheap energy for years.

Europe eagerly watches all disputes between Russia and its neighbors as a fifth of Europe's gas comes from Russia via the territories of Ukraine and Belarus. Those two also ship an important part of Russian oil via inland pipelines.

On the gas front, Moscow showed generosity toward Belarus, agreeing to raise prices only by 12 percent to $168 per 1,000 cubic meters in 2010, much lower than any Russian gas customer in Europe or the former Soviet Union pays.

By contrast Ukraine -- which also avoided a major gas conflict with Russia this year -- may pay $305-$306 per 1,000 cubic meters in the first quarter of 2010, about 47 percent more than the $208 it is paying this quarter.

Things were much less easy on the oil side, with Ukraine avoiding a major conflict with Russia by agreeing a deal on 2010 supplies only a few days before the New Year.

With Belarus, talks have failed because Minsk had insisted that Russia supply duty-free oil not only for volumes consumed domestically in Belarus but for all Russian crude supplied to the country, Russian agencies reported, citing an unnamed source in the Russian delegation.

Belarus gets some 400,000 barrels per day from Russia via the Druzhba pipeline to process at its two refineries, and exports most refined products to the West while consuming a much smaller portion domestically.

"The Belarussian side is de facto sticking to absolutely groundless demands that Russia must continue subsidizing its economy," Interfax and RIA Novosti agencies quoted the source as saying.

Druzhba, one of the world's biggest pipelines by length and capacity, supplies major refiners in Germany covering some 15 percent of the country's oil needs, while Poland relies on Druzhba for more than three-quarters of its consumption.