OIL SUPPLY CUTOFF TO BELARUS AND EUROPE SHAKES RUSSIA’S REPUTATION FOR RELIABILITY

Conclusive evidence emerged on January 9 that Russia halted oil exports to European Union countries via Belarus during the night of January 7-8. Moscow seeks to force Belarus to accept Russian-imposed terms for oil supplies to Belarus itself as well as for the transit of Russian oil to Europe (see EDM, January 8, 9). Russia briefly interrupted the deliveries to EU countries via the Belarus Druzhba pipeline several times between January 5 and January 7 before halting them completely. Moscow never informed the EU customer countries about its intentions and left them guessing about Russia’s ongoing moves.

On January 9 Moscow threatened to turn its dispute with Belarus into a dispute between Russia and the EU. Probably for the first time ever, Moscow officially warned that it might have to reduce oil exports in the short term by cutting back on oil extraction in Russia itself. The excuse is that Belarus makes it impossible for Russia to fully carry out its oil export commitments. This and other warnings authorized by President Vladimir Putin on January 9 are inspiring the European Union — also for the first time — to openly question the postulate about Russia as a “reliable energy supplier.”

Russian oil exports to Europe via Belarus are estimated at nearly 80 million tons for 2006, amounting to more than one-third of Russia’s total deliveries to EU countries. In addition, Russia supplies crude oil to Belarus refineries for massive exports of refined products to European countries.

Chairing a government session on January 9, Putin ordered the government to work out a set of possible measures, which he listed in the following order on live television: Reduce oil extraction in Russia, hold talks with Belarus, satisfy the interests of Western consumer countries, and satisfy as well the interests of Russian oil companies by minimizing their losses.

Industry and Energy Minister Viktor Khristenko and Economic Development and Trade Minister German Gref elaborated on these ideas during news conferences the same day. Russia, they said, can use railroad and sea tanker transportation to Europe in order to re-direct some crude oil volumes that normally reach Europe through the Belarus Druzhba pipeline. However, such alternative spare capacities are limited at present, and cannot even in the medium term be expanded to accommodate the full volume of crude that has hitherto been exported to Europe through the Druzhba system. Thus, apart from developing those alternative transport capacities for crude, Russia needs to increase in-country refining capacities, of which Russia is short. Pending those measures, the Russian government would discuss with the oil companies short-term cutbacks in production, according to the ministers.

The warnings aim at far more than just pressuring Belarus to accept Russian-imposed terms for oil supplies and transit. They appear designed to foster nervousness on European energy markets and set the stage for manipulating oil prices. While almost certainly a bluff, such warnings can potentially cause short-term disruptions. From Russia’s own standpoint, these warnings are also mutually contradictory to some extent. Thus, while urging Russian companies to quickly increase refining, the Russian government has just introduced an oil export duty heavily hitting Russian oil producing companies that refine their oil in Belarus.

German Chancellor Angela Merkel, meeting with European Commission President Manuel Barroso on January 9 in Berlin, struck a new and far more realistic tone than had hitherto been the case in Berlin on energy relations with Russia. Asked about Russia’s reliability as a supplier, Merkel replied that Moscow’s “failure to consult [with EU countries] is unacceptable,” “it repeatedly destroys confidence; you can’t build cooperation based on real mutual trust in this way.” Merkel strongly called for diversifying Europe’s energy mix and reducing dependence on a supplier country.

In a similar vein, EU Energy Commissioner Andris Piebalgs declared, “Failure to inform the [EU] partners is unacceptable.” The European Commission (the EU’s executive body) underscored that the situation “negatively reflects on the two countries’ perceived reliability as energy partners’ [to the EU]. With this, the EC equalized Russia and Belarus in terms of reputation as economic partners.

The situation highlights the risks of dependence on Russia for crude oil deliveries in addition to gas. It shows that the January 2006 gas crisis over Ukraine and the oil supply cutoff to Lithuania (a move hostile to Poland as well) in July 2006 are far from exceptions, but rather recurring crises. And it shatters the view of Russia as a “reliable supplier” even in some West European circles that have been clinging to this view.

(Interfax, Russian TV Channel One, NTV Mir, Belapan, Belarus Television, January 9)