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Russia Halts Oil Flows To Belarus Refineries

An oil refinery in Navapolatsk, Belarus
MOSCOW (Reuters) -- Russia has halted oil flows to Belarusian refineries after failing to agree terms for 2010, but rising tensions have not so far affected the transit of Russian oil to the European Union, traders said today.

Germany and Poland are watching the dispute after supplies to some of their major refineries were cut during a similar row between Moscow and Minsk in January 2007.

European politicians have repeatedly accused the Kremlin of using its energy might as a tool of intimidation against 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 neighbours with cheap energy for years.

A fifth of Europe's gas comes from Russia via Ukraine and Belarus. Large volumes of Russian oil also go through pipelines that traverse the two ex-Soviet states.

Two traders from major Russian oil firms said crude had not been flowing to Belarusian plants since January 1, but added that two Belarusian refineries -- Naftan and Mozyr -- had enough stockpiled crude to continue operations for around a week.

"In Belarus they say when holidays are over on Monday, Lukashenka will come back and decide what to do," said one trader, referring to Belarusian leader Alyaksandr Lukashenka. Russia is on holiday until January 11, while Belarus resumes working on January 4.

Transit Fees

Minsk has insisted that Russia supply duty-free oil not only for volumes consumed domestically in Belarus, but for all Russian crude supplied to the country.

Most of that crude is refined by Naftan and Mozyr for re-export to the West and only a small portion of refined products stays inside Belarus.

Traders said Mozyr and Naftan have stockpiles of around 450,000 tons.

They also said Belarus had threatened to raise transit fees on Russian oil supplies to Poland and Germany by a factor of 10 to $45 per tonne in retaliation to Russian demands.

That would make transit supplies of crude expensive and potentially disrupt flows to Poland and Germany.

Russia and Belarus had plans to created a union with one currency and common customs rules, but the project never materialised as relations between the two states chilled.

Moscow has often blamed 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.

Lukashenka in turn has accused Russia of deviating from initial agreements to create the union, including its efforts to raise oil duties.

Traders said there was still hope the dispute of 2007 would not be repeated as senior Russian and Belarusian officials had restarted talks on January 2 on a new pricing structure for 2010 oil deliveries.

A spokesman for Russian pipeline monopoly Transneft, Igor Dyomin, said there was no fresh news on the talks today.

Belarus gets some 400,000 barrels per day from Russia via the Druzhba pipeline, one of the world's biggest pipelines by length and capacity.

Druzhba's spur crossing Belarus 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.