Oil supplies cut

On the first trading day of 2010, news that Russia halted oil supplies to neighboring Belarus pushed oil prices up 0.9 percent, to $80.10 a barrel. The stop in supplies is the latest incident in what has become a January tradition: Russia and a bordering country fail to agree to terms for energy transport before the New Year's Day deadline so Moscow halts the flow of energy.

Both Belarusian and Russian officials say the other side is making unreasonable demands.

A statement released Sunday by the Belarusian cabinet accused Russia of putting it under "absolutely unfounded and unacceptable pressure." It said Russia's demand that Belarus pay an increased tax on the oil contradicted agreements signed last fall.

But Transneft, Russia's oil pipeline monopoly, said Belarus was trying to get a hold of the Russian crude oil duty-free. "They want to receive it for free, process it and then send it abroad," a Transneft official said.

Moscow has said it is only trying to establish normal market terms after years of providing its neighbors with subsidized energy.

Worries of repeat disruptions for western Europe

Most of the crude oil that arrives in Belarus is refined by the Naftan and Mozyr refineries and then re-exported to the West. Only a small portion of the refined oil is used by Belarus itself. In retaliation over Russia's price hikes, Belarus has threatened to increase the transit fee it charges to move Russian oil to Germany and Poland tenfold.

This could lead to a disruption of supplies to those countries, something many Europeans are worried about anyway in view of the cut to Belarus' deliveries.

A similar price disagreement in January 2007 led Russia to halt the flow of oil to Belarus. That year supplies to Germany and other European Union countries were cut for several days.

The Druzhba oil pipeline that crosses Belarus feeds about 15 percent of Germany's oil needs and 75 percent of Poland's.

A spokesman for Russian Prime Minister Vladimir Putin said the current row between the two countries would not affect supplies to the West and that if there were supply interruptions, it would not be Russia's fault.

"There is supply and it is 100 percent guaranteed," Dmitry Peskov told the AFP news agency.

Oil exports to Europe continue according to Belarus state oil company Belneftekhim. A spokeswoman for the company said the Druzhba pipeline was working normally. Belarus itself reportedly has a week's worth of oil stockpiled.

Belarusian President Alexander Lukashenko is expected to get involved in the negotiations later this week as the country returns to normal working hours after the Christmas and New Year holidays. Russia's holidays continue until January 11.

hf/AFP/AP/dpa/Reuters
Editor: Nancy Isenson