UKRAINE HAS UPPER HAND IN OIL TRANSIT DISPUTE WITH RUSSIA.

Moscow appears to have little leverage in the dispute over transit fees for Russian oil transported through Ukraine by the Druzhba pipeline system. Russia’s Fuel and Energy Ministry (Mintopenergo) halted oil deliveries through the pipeline January 1 in an attempt to force Ukraine to abandon its proposed increased transit fee of $5.2 per ton per 1,000 kilometers. The new rate represents an increase of approximately 10 percent. Retaliation against Ukraine in the gas sector, where Ukraine has also requested higher transit fees, is too counterproductive to be seriously considered. Russian prime minister Viktor Chernomyrdin categorically objected to the oil transit rate increase in a letter to Ukrainian prime minister Yevhen Marchuk. Ukraine’s state committee for oil and gas and the management of the Druzhba pipeline in Ukraine, however, have pointed out that more than 30 Russian oil firms have already agreed to the moderate fee increase and have concluded contracts for pumping 7 million tons under the new tariff. Stung, Mintopenergo officials contended the demand for lower fees was state policy and that "Russian companies which contradicted state policy must be punished." Druzhba director general in Ukraine, Lubomir Bunyak, retorted in Lviv that the matter should be decided by the firms selling oil, not the Russian state.

The transit of Russian oil through the Druzhba pipeline system was partially resumed January 3 in the direction of Hungary. It remains almost completely interrupted in the direction of the Czech Republic and Slovakia. The trickle of oil that has moved through the pipeline in recent days appears to be a remnant of volumes which were contracted for in 1995. The interruption has not caused shortages on Central European markets, where ample reserves and alternative suppliers are currently available. A certain portion of the withheld oil was destined for further transit to western Europe. Russian state television charged in a commentary last week that Ukraine’s action was benefiting Russian competitors in the saturated international oil market. (13)

Visit by U.S. Defense Secretary Reverberates in Ukraine.