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Russia, Belarus resolve dispute over oil duties

Both nations, longtime allies, lose face in a diplomatic `fistfight.'

January 13, 2007|David Holley | Times Staff Writer

MOSCOW — Russia and Belarus on Friday resolved a dispute over oil taxes and transit fees that had disrupted energy supplies to European customers, but the harsh tactics used by each side left both countries politically bruised.

After two days of negotiations in Moscow, Russia agreed to reduce a newly imposed $180 per metric ton export tax on crude oil sent to Belarus to $53 a ton, Russian Prime Minister Mikhail Y. Fradkov said. The rates will rise in 2008 and 2009, he said.

Belarus' Soviet-style economy has been heavily subsidized by cheap Russian oil and gas, which it has been able to buy at Russia's low domestic prices. State-run firms in Belarus have made large profits refining Russian oil and then reselling gasoline and other products to European Union customers at market prices.

Under the new terms of trade, Belarus' processing of crude oil for resale will be much less profitable, reducing a key source of funding for the authoritarian government of President Alexander G. Lukashenko.

The oil dispute was triggered by Russia's imposition of the higher export duty, which took effect Jan. 1. Belarus retaliated by imposing a transit fee of $45 per ton for oil shipped across the country through the Druzhba, or Friendship, pipeline to the European Union.

Russia cut off the supply of oil to the pipeline Monday, accusing Belarus of illegally siphoning oil. That quickly prompted complaints from officials in European capitals.

Belarus backed down Wednesday evening, announcing that it was canceling the $45 transit fee. Russia began supplying oil to the pipeline again Thursday, but at that time the two countries had still not hammered out the details of an agreement.

Since the 1991 collapse of the Soviet Union, Russia has provided oil and gas at below-market rates to a number of former fellow Soviet republics. But in recent years the Kremlin has said it wants to raise the price of all energy exports to market levels.

Despite the political costs, both Russia and Belarus could claim some measure of economic victory in the dispute.

Fradkov said that even the reduced level of export duty will bring more than $1 billion to the Russian federal budget this year. Belarus, for its part, won a reduction in the fee.

Critics, however, have pointed out that both countries suffered blows to their international images from the dispute. It raised questions in Europe about Russia's reliability as an energy supplier and threatened to undermine the economic foundations of Lukashenko's government, often called "the last dictatorship in Europe."

"Moscow's reputation as a reliable market player is even more tarnished than before," said Yulia Latynina, a columnist for the newspaper Novaya Gazeta.

"The Kremlin got what was coming to them," said Mikhail G. Delyagin, chairman of the Institute of Globalization Studies, a Moscow think tank. "They shouldn't have started this gas and oil war to begin with, and in any case they shouldn't have spread it to Belarus, making all their old friends into their new enemies."

The sides "were supposed to sit down and play chess," Latynina said. "But they chose a fistfight instead, and so they both lost."

david.holley@latimes.com

Times staff writer Sergei L. Loiko contributed to this report.

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