Russia may reduce oil production

Russian President Vladimir Putin said yesterday the world's second biggest oil exporter may cut output, signalling his resolve to force Belarus to climb down in a trade dispute that has shut off a major oil pipeline to Europe.

As the impact of a two-day-old stoppage to the Druzhba ('Friendship') pipeline spread across central and eastern Europe, Putin ordered his government to discuss possible production cuts by Russian oil firms.

The European Union deplored the escalation of a tit-for-tat trade row between energy power Russia and Belarus, the erstwhile ally across whose territory Druzhba pumps around two-fifths of Russia's oil exports.

But hopes of a quick resolution faded after Putin's remarks. Russian officials kept a Belarussian delegation to Moscow cooling its heels before starting talks in late afternoon.

Putin told his government "to discuss with Russian companies the possibility of reducing oil output in connection with the problems arising from transit through Belarus."

The European Union urged Russia and Belarus to settle the dispute, which took out supplies to Poland and Europe's biggest economy Germany on Sunday night and has since cut off Slovakia, Hungary and the Czech Republic.

"It is not acceptable for suppliers or transit countries to take measures without consultation. Of course this is a matter for concern," EU Commission President Jose Manuel Barroso said on a visit to Berlin.

Chancellor Angela Merkel of Germany, which imports a fifth of its oil via the Druzhba pipeline, backed Barroso on the unilateral cuts. "That hurts trust and it makes it difficult to build a cooperative relationship based on trust," she said.

Oil theft

Russia said on Monday it had been forced to shut down Druzhba because Belarus was siphoning off oil to secure payment in kind for a transit tariff Minsk imposed last week.

Russia had earlier imposed an oil export duty on Belarus to staunch annual losses of up to $4 billion it says it was suffering because Belarus has been refining duty-free oil at a steep profit, in violation of their customs union.

The oil shutdown echoes last year's bust-up between Russia and an increasingly pro-Western Ukraine that disrupted gas supplies to Europe.

This time, Putin is again gambling Russia's reputation as an energy supplier by taking on his closest ally, Belarussian President Alexander Lukashenko.

Analysts said both countries would have to find a compromise quickly to avoid taking a serious economic hit. But crude oil futures depressed by an unusually warm US winter fell by $1.91 a barrel to $54.18.

"Russia's export pipeline structure cannot offer alternative routes for the volumes supplied to Europe via Druzhba, and thus a mutually acceptable agreement will have to be reached," said Steven Dashevsky, oil analyst at Aton brokerage in Moscow.

Source: China Daily/agencies