Fitch Ratings says that EU energy security may be negatively affected by a new dispute between Russia and Belarus, this time over crude oil transportation. Belarus's state oil company Belneftekhim has notified Russia's crude oil pipeline monopoly Transneft that a transit duty of USD45 per metric tonne will be imposed on Russian oil transiting the country from 1 January 2007.

The timing of the announcement came as a surprise as the European Commission's Gas Coordination Group recently met in Brussels to welcome a five-year gas supply contract signed by Belarus and Russia. This agreement averted potential gas supply interruptions like those seen last year during a similar dispute with Ukraine.

"A move by Belarus to try and ease some of the potential economic pain caused by increases in oil import duties and natural gas prices should not be unexpected," says Jeffrey Woodruff, Director in Fitch's Energy Team in London. "The key issues remaining are how this will affect Belarus's relations with Russia and how will Russia react to this new transit tariff."

Russia recently decided to impose a crude oil import duty for Belarus of USD180.70 per tonne at the same time as raising the price it charges Belarus for natural gas from USD46.70 per thousand cubic meters (mcm) to USD100 per mcm. Russia decided to impose the crude oil export duty to end an estimated USD4.0 billion per year scheme whereby refineries in Belarus import duty-free Russian crude oil and then export finished refined products to European customers, while contributing nothing to the Russian budget. The new tariff by Belarus is aimed at recovering approximately USD3.0 billion in losses due to the Russian imposed oil export duties.

The retaliatory move by Belarus came as a shock in Moscow and Fitch believes this could be the beginning of a more serious conflict between the two neighbours that will eventually impact EU oil supplies. Russia says the transit duty contradicts the trade and economic agreements between the two countries signed in 1992 and that Belarus has no right to impose duties on goods that are merely transiting the country as opposed to being consumed inside the country. It is for this reason the agency feels there is scope for this latest conflict to escalate.

Currently about 40%, or 2.0 million barrels per day (bdp), of Russian crude oil is exported via the Druzhba (Friendship) pipeline across Belarus to Central Europe. Germany and Poland are the largest recipients of this oil, importing 500,000 and 360,000 bpd respectively. An additional 340,000 bpd had been going to Lithuania for its Mazeikiu refinery (rated 'B+') and Butinge export terminal on the Baltic Sea before a pipeline leak last year halted supplies.

While Belarus had earlier suggested it would be willing to share the revenue it earns from selling refined products to Europe with Russia if it rescinded the export duty, Fitch believes such a deal will now be more difficult due to the transit duty imposed by Belarus.