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Russia oil row hits Europe supply - extended

Russia has cut oil supplies to Poland, Germany and Ukraine amid a trade row with its neighbour Belarus. Russian oil pumped to Slovakia and the Czech Republic via the Druzhba pipeline stopped last night.

The Russian state pipeline operator, Transneft, said it cut supplies on the Druzhba pipeline to prevent Belarus illegally siphoning off oil. The European Commission said the cuts posed no immediate risk to European supplies but it was seeking an urgent explanation from Belarus and Russia. Belarus has been in dispute with Russia over the price of Russian oil and gas. Minsk says Russia has not been paying a transit tax for moving oil through Belarus, imposed after Russia doubled the price it charges Belarus for gas supplies. Exports were halted after Belarus began legal action against Russia for failure to pay the new oil shipment tax. Transneft later said it had been forced to cut off supplies through the Druzhba pipeline after Belarus began siphoning off oil as payment in kind for the duties. The Russian firm has so far refused to pay the oil export taxes as it claims the charges are illegal. Separately, Azerbaijan has suspended oil exports to Russia following a pricing dispute with Russian state-backed oil giant Gazprom.

Neither Germany nor Poland is in any immediate danger of experiencing oil shortages, as both maintain substantial reserves. But BBC economics correspondent Andrew Walker says the suspension is an uncomfortable reminder to Europe of the large and growing role that Russia has in meeting its energy needs. Poland's Deputy Economy Minister, Piotr Nalmski, said his country had enough oil reserves for 80 days, but he attacked the decision to halt exports. „This shows us once again that arguments among various countries of the former Soviet Union, between suppliers and transit countries, mean that these deliveries are unreliable,” he told the BBC. Last year deliveries of Russian natural gas to much of Western Europe were disrupted during a dispute over pricing between Russia and Ukraine. The European Union is set to discuss energy supply issues as part of a meeting on climate change and energy policy scheduled for Wednesday.

The European Commission said it was investigating whether the Russian move would have an impact on another branch of the pipeline, which runs to Slovakia and south-east Europe. „I have also contacted our Russian and Belarusian authorities calling on them to provide an urgent and detailed explanation of the causes of this disruption,” said European Energy Commissioner Andris Piebalgs. Commission officials plan to look at whether European Union members will have to draw on strategic stockpiles to ensure their supplies, he added. German Economy Minister Michael Glos said he viewed the pipeline closure with concern and called on Russia and Belarus to meet their energy transit and delivery responsibilities „as soon as possible”. Officials in Minsk have declined to comment.

Oil deliveries from Ukraine to Slovakia stopped yesterday at 8:15 p.m. local time, the Czech Industry Ministry said in an e-mailed statement. Mol Rt.'s Slovnaft unit in Slovakia confirmed the stoppage and said the situation should not disrupt supplies of fuels to the Slovak market because the company is taking oil from its own reserves. Slovnaft spokeswoman Kristina Felova said in a phone interview today that supplies from Ukraine had not been reestablished. „We believe that the stoppage should not last too long,” Felova said. „We are in close contact with the Economy Ministry and the Administration of State reserves.” The Czech Republic is receiving oil from storage tanks in Slovakia, the Czech ministry said. The tanks have a capacity of at least 52,000 metric tons of oil and can supply the country's demand for four days. Industry Minister Martin Riman said on Czech public television last night that the country has oil reserves of about 100 days and a disruption of fuel production is unlikely.

The latest energy wrangle comes almost a year after deliveries of Russian natural gas to much of Western Europe were disrupted during a dispute over pricing between Russia and Ukraine. However the current row is resolved, Natalia Leschenko, an analyst at Global Insight, said she expected it to end soon and at the expense of Russia. „Transneft and the Russian government are looking to face financial losses and damaged reputation, whereas the outcast status of Belarus in Europe gives it the benefit of invulnerability, which its government uses in full,” she said.

The 2,500 mile long pipeline Druzhba has the capacity to ship more than 1.2 million barrels a day to eastern and central Europe and typically works at close to full capacity. (BBC NEWS, Bloomberg)