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Russia-Belarus Row Affects Oil Flows Again

An oil-pipeline tap in Belarus (file photo)
MOSCOW (Reuters) -- An unresolved row over Russian oil exports to Belarus escalated again, with Moscow reducing flows to Belarusian refineries, traders have said, in a move likely to revive fears of supply disruptions to Europe.

Traders said Russia's pipeline monopoly Transnefthad told oil firms to re-route one third of flows scheduled for Belarusian refineries to the Polish Baltic port of Gdansk, which is on the same pipeline as Belarus but farther west.

Some traders said a few firms had already agreed to the order and would ship crude to Gdansk. Certain other firms had agreed to reduce supplies to Belarus but would seek destinations other than Gdansk for their oil.

Russia, the world's largest energy producer and Europe's top energy supplier, had briefly halted deliveries to the two refineries in Belarus, Naftan and Mozyr, after the two sides failed to clinch a deal by the New Year.

The suspension helped push oil prices to a 15-month high above $83 a barrel during the first days of this month. Flows restarted on January 3.

Europe Union countries, mindful of a dispute in 2007 that cut around 1 million barrels per day of Russian oil supplies via Belarus, are keen for the two ex-Soviet states to resolve their differences so Poland and Germany can get oil without interruptions.

"This is only going to get worse before it gets better," said Andrew Neff, senior analyst IHS Global Insight, Washington DC. "As long as transit volumes to Europe are not affected, this is just a bilateral trade dispute between Belarus and Russia".

Duty-Free Oil

The latest dispute centers on the tariffs Belarus must pay for Russian oil.

Russia allowed Belarus to import oil last year at only 35.6 percent of the current crude export tariff.

Russian Prime Minister Vladimir Putin has said Belarus can now buy 6 million tons of Russian oil, for domestic needs only, duty-free, while the remaining 14.5 million tons a year -- that Belarus refines and re-exports to the West -- should not be exempted from duties.

Putin's spokesman Dmitry Peskov said talks were continuing and added that Deputy Prime Minister Igor Sechin had sent a letter on Friday to the Belarusian side explaining the Russian position. He declined to disclose the content of the letter.

"As before, the Russian side confirms its readiness to meet the demand from both the Belarusian side as well as European customers," he said, declining to comment on the latest cuts.

IHS Global Insight's Neff said he suspected the solution could be found if Belarus agreed to cede a stake in the Naftan refinery to Russia.

Russia has repeatedly clashed with ex-Soviet states over energy pricing in recent years, prompting politicians from the European Union and the United States to accuse the Kremlin of using its energy might to bring its neighbors to heel.

Russia says it wants simply to bring energy prices and transit fees into line with the market after subsidizing its neighbors for many years with preferential terms. Much of its oil and gas must cross Ukraine or Belarus to reach Europe.