Russia, Belarus reach compromise on oil dispute that halted oil flows to Europe, Belarus says

Wednesday, January 10th 2007, 8:53 am

By: News On 6

MINSK, Belarus (AP) _ Russia and Belarus reached a compromise Wednesday on their dispute that has halted oil flows along a key pipeline to Europe after telephone talks between the two countries' presidents, the Belarusian presidency said.

The Kremlin confirmed in a brief statement that Presidents Vladimir Putin of Russia and Alexander Lukashenko of Belarus had held telephone talks on the oil transit battle, but it did not mention any agreement.

``In the course of the conversation, a compromise was found which enables us to resolve the current deadlock, including concerning the transit of Russian oil to European countries through the territory of the Republic of Belarus,'' the Belarusian presidency's press service told The Associated Press.

The press service added that Presidents Putin and Lukashenko had ordered their prime ministers to work out within two days a package of measures to resolve the dispute and submit them for approval by the two leaders on Friday.

On Monday, Russia stopped pumping oil to Europe via the Druzhba, or Friendship, pipeline that crosses Belarus, accusing its neighbor of siphoning off oil. By Tuesday, the stoppage had affected supplies to Ukraine, Germany, Poland, Hungary, the Czech Republic and Slovakia.

The oil shortages have caused fresh damage to Russia's reputation as a key energy supplier to the European Union, one year after a price dispute with Ukraine led to a brief interruption of EU gas imports from Russia. EU leaders have strongly criticized the shutdown of the oil pipeline.

The dispute centers over Russia's decision to impose a hefty duty on oil exports to Belarus, with Moscow complaining that the previous duty-free regime has been costing the Russian budget up to $4 billion a year.

Minsk, whose isolated regime is tied to Moscow through a loose union treaty and relies on cheap Russian energy and duty-free trade with Russia, hit back by slapping duties on Russian oil pumped across Belarus to Europe.

Putin took a harsh stance at Cabinet meeting Tuesday, ordering his government to work out a set of measures aimed at Belarus to protect the national economy.

Putin also told ministers to consider a possible reduction in oil output _ an indication the standoff could drag on. Russia has a limited capacity for refining oil and would have to cut crude output if its exports decrease suddenly.

Talks between Belarus and Russia broke up in failure Tuesday after Moscow insisted that Minsk annul the oil transit fee.

The Russian business daily Vedomosti reported Wednesday that Russia was planning to impose duties on more than half of Belarusian imports, in what would deal a heavy blow to Belarus' inefficient, state-dominated economy.

Analysts say that Putin has grown tired of supporting the authoritarian Belarusian leader, who has been dubbed the ``last dictator in Europe'' by some Western governments for his undemocratic rule and crackdown on dissent.

The disruption of Russian oil to Europe one year after the Ukraine gas cutoff alarmed European officials and led to renewed calls for energy diversification. Russia currently supplies a quarter of the EU's oil and over two-fifths of its natural gas.