Russia threatens Belarus with months of oil supply cuts

MOSCOW Thu Aug 29, 2013 2:25pm EDT

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MOSCOW (Reuters) - Tension between Russia and Belarus rose on Thursday as Moscow warned oil supply cuts to its energy-poor neighbor could last for months, and Minsk threatened to open a criminal case against a Russian tycoon with Kremlin ties.

The close but often rocky relationship between the ex-Soviet states hit a major bump this week when Vladislav Baumgertner, the chief executive of potash company Uralkali, was arrested in Minsk.

On Wednesday, Russia ordered its oil companies to cut supplies to Belarus by about 25 percent, prompting talk of a trade war. Belarus relies entirely on Russian oil to keep its two major refineries running to supply the local market.

Russian pipeline monopoly Transneft said on Wednesday Russia would cut oil supplies to Belarus by 400,000 tonnes in September due to maintenance work at the trunk pipeline.

On Thursday, Russian news agencies quoted Deputy Prime Minister Arkady Dvorkovich as saying Belarus would receive reduced volumes of oil in the fourth quarter, indicating the cuts would carry on long past September.

"On the basis of planned oil deliveries for 2013 and on the volumes which already have been shipped, the cuts in oil supplies will surely affect the fourth quarter," the government press service cited Dvorkovich as saying, according to Interfax.

In Belarus, state investigators raised the prospect of also prosecuting billionaire Suleiman Kerimov, the top shareholder in Uralkali, which controls 20 percent of the world potash market.

"The materials that the Investigative Committee of Belarus possesses do not rule out the possibility of opening a criminal case in relation to Suleiman Kerimov, as well as other individuals," committee representative Pavel Traulko said.

An attempt to take on Kerimov, who was reported to be in Russia, would raise the stakes in the standoff, which unfolded following Uralkali's decision to break away from a marketing venture between the company and state-owned Belaruskali.

Kerimov, a 47-year-old native of the Caucasus province of Dagestan in southern Russia, has close ties to President Vladimir Putin's administration and completed a Kremlin-backed Russian potash merger in 2011.

The world market for potash has long been dominated by a handful of players led by the Belarusian Potash Co (BPC), a marketing venture between Uralkali and Belaruskali.

BPC and Canpotex, which groups North American firms Potash Corp, Agrium and Mosaic, together have controlled 70 percent of sales.

But Uralkali quit the cartel on July 30, angered by a law passed in Belarus last year that allowed Belaruskali to sell product outside the marketing venture.

Belarus relies on Russia not only for energy but also for economic handouts and as a counterweight to the European Union and the United States, which shun President Alexander Lukashenko because of his treatment of opponents and lack of tolerance for dissent.

For Russia, landlocked Belarus serves as a buffer with NATO, and Putin needs it as a member of economic and security alliances as he seeks loser integration among the nations of the former Soviet Union.

(Additional reporting by Andrey Makhovsky in Minsk; Writing by Vladimir Soldatkin and Steve Gutterman; Editing by Douglas Busvine and Jane Baird)

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