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Russia may cut oil production amid dispute

Putin's comments seem to hold out the threat that negotiations with Belarus could drag on for days or months.

January 10, 2007|David Holley | Times Staff Writer

MOSCOW — A Russian-Belarusian oil dispute that has shut down a key pipeline carrying crude oil to European customers may drag on long enough to force Moscow to cut production, Russian President Vladimir V. Putin said Tuesday.

The bitter spat between the longtime allies led to a cutoff Monday in the flow of oil across Belarus, prompting complaints from European officials.

A warm winter has left Europe with abundant oil supplies, triggering falling prices and keeping a lid on the severity of the continent's short-term worries about the cutoff. But the dispute, which concerns oil taxes and transit fees, has revived fears in the European Union about overreliance on Russian energy and has focused attention on efforts to come up with a comprehensive European energy policy.

The tough Russian stance also threatens to undermine Belarusian President Alexander G. Lukashenko. His authoritarian government, often called "the last dictatorship in Europe," has been propped up by energy subsidies from Moscow that are now being eliminated.

"The Kremlin has dumped Lukashenko," Belarusian opposition leader Alexander Milinkevich said in a telephone interview from Minsk, the capital.

The oil dispute was triggered by a new Russian customs duty of $180 per metric ton on crude oil exports to Belarus, a tax that took effect Jan. 1. Belarus retaliated by imposing a transit fee of $45 per ton for oil shipped through the pipeline to the European Union.

Moscow had previously shipped oil to Belarus duty-free under agreements reached in a bid to eventually unite Belarus and Russia into a single state.

That effort has lost steam in recent years, however. It appears that the Kremlin has decided to maximize its oil and natural gas export profits despite the political impact on Lukashenko.

"Since this united economic space is not working out, it was decided in Moscow to make a transition to market relations," said Vyacheslav A. Nikonov, president of the Politika Foundation, a Moscow think tank. "Lukashenko naturally doesn't like it. Of all the foreign partners Putin ever had, Lukashenko has always been the most difficult."

Last month, Belarus was forced to agree to pay slightly more than twice as much for Russian natural gas this year compared with last year, although the cost remains less than half the amount charged to European Union customers. That deal calls for further price hikes in the next few years.

Milinkevich, the opposition leader, said Lukashenko had overreacted to Moscow's decision to raise energy prices toward market levels.

"Despite all these years of preferential terms for oil and gas, Belarus failed to prepare itself for real market relations," he said.

"Belarus has lost its last partner in Europe and found itself in total isolation," he added. "I think eventually Moscow and Belarus will arrive at some temporary compromise, but their good relations are a thing of the past."

In televised remarks made at a meeting of Cabinet ministers, Putin ordered officials "to discuss with Russian oil-producing companies the possibility of reducing oil production in connection with the problems that arose when transporting our oil through Belarus' territory."

That comment appeared to hold out the threat that negotiations could drag on for days or even months. But Putin also called for talks to move forward, and for officials "to do everything to protect the interests of our Western customers."

A similar dispute a year ago between Russia and Ukraine over natural gas prices briefly disrupted supplies to the European Union.

Speaking at a joint news conference in Berlin, German Chancellor Angela Merkel and European Commission President Jose Manuel Barroso criticized both Russia and Belarus for the disruption in supplies.

"It is not acceptable when there are no consultations about such moves," Merkel said. "That repeatedly destroys confidence, and you cannot build cooperation based on true mutual trust in this way.... Even during the Cold War, Russia was a stable energy supplier."

The pipeline delivers about 20% of Germany's yearly oil supply. The European Union relies on Russia for about 40% of its natural gas imports and about 30% of its oil imports.

Steven Dashevsky, director of research at Aton Capital Group in Moscow, placed most of the blame for the dispute on Belarus.

"Russia, as a main oil and gas producer, is in the same shoes with Western Europe, as a main oil and gas consumer," he said. "For the second year in a row they become hostages of unstable transit states that can't pay market prices for their energy and resort to creating problems for all of Europe."

Belarusian Deputy Prime Minister Andrei Kobyakov met in Moscow on Tuesday with Russian Economic Development and Trade Minister German O. Gref, but it was unclear whether the talks made any progress.


Times staff writers Jeffrey Fleishman in Berlin and Sergei L. Loiko in Moscow contributed to this report.

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