Russian PM Instructs Government to Resolve Oil Supply Disruption to Czech Republic

No More Funny Business

Russian Prime Minister Vladimir Putin yesterday ordered his government to guarantee full oil deliveries to the Czech Republic, moving decisively to bring to an end a week-long reduction in Russian oil exports to the Czech Republic that many believe was politically motivated (see "Related Articles" below). Putin, in a meeting with Deputy Prime Minister Igor Sechin, who has responsibility for oil and gas issues, called on government officials to "treat this matter carefully and work out [the measures] with all the partners so that there are no interruptions", according to Interfax. Putin, after being briefed on the matter by Sechin, added that the disruption was "not directly linked to Russian oil suppliers".

Deliveries of Russian oil to the Czech Republic via the Druzhba oil pipeline fell sharply earlier this month, just after the Czech government agreed on a deal with the United States to host a radar station as part of a missile defence shield. The reduction in supplies, together with the fact that none of the Czech Republic's neighbours suffered a similar reduction, triggered speculation that the cut was a political response by Russia to show its anger with the Czech government's actions. However, Russian officials quickly denied that this was the case, and the Czech Foreign Ministry played it cautiously, accepting Russia's pleas that the supply reduction was not politically motivated.

However, over the course of the past week, the variety of excuses cited by Russian officials seems to undermine the argument that it was not politics at play. Transneft, the Russian state oil pipeline operator, said that the reduction was the result of problems with extraction in Russia, all the while saying that total volumes to the Czech Republic in the third quarter would meet the export target. Tatneft, one of the two Russian oil firms (along with Bashneft) that co-ordinates oil supplies to the Czech Republic via the Druzhba, then said that it had re-routed volumes to Turkey due to better margins in the Turkish market. This followed Tatneft's original explanation that the reduction was of a "technical nature".

To further cloud the issue, Sechin said yesterday that "intermediaries" were to blame for the reduction in supplies. Interfax quoted Sechin as saying that, "Russian oil supplies are being made based on agreements between Russian firms and Czech consumers via intermediaries, which are registered in offshore zones. The overwhelming majority of Russian companies don't have direct long-term supply deals with Czech consumers." Sechin added that the presence of intermediaries "was not guaranteeing implementation of agreed export volumes."

A Preponderance of "Coincidences"

Sechin's argument may have the most merit, but after the variety of reasons cited over the course of the last week by Russian officials, his words will do little to ease, let alone reject, the perception that Russia is playing politics with its energy exports. The complex relationship between oil producers, oil firms that co-ordinate supplies, Transneft, intermediaries that control imports, traders, and the final end-users of oil via the Druzhba pipeline certainly leaves much to be desired in terms of transparency, but at the end of the day, Czech companies will look to Russian oil suppliers—or rather, the Russian government—to ensure that oil that is promised for delivery is actually transported. Putin's instructions should ensure a resumption of full Russian oil deliveries to the Czech Republic via the Druzhba oil pipeline, but the incident may only serve to undermine Russia's argument that this was not politically motivated.

Indeed, this is far from the first time that a mysterious disruption or reduction in Russian oil supplies to an importing state followed shortly after a particular event in the designated country that raised the ire of the Russian government. Just last year, Russian oil product shipments via Estonia were cut sharply in the wake of a decision by the Estonian government to remove a Soviet Second World War memorial from a prominent location in the Estonian capital, Tallinn. The move led to several nights of rioting by Russian youths in Tallinn and caused a diplomatic rift between the two countries. Similarly, in 2006, shortly after the Lithuanian government opted to sell control of its Mazeikiu Nafta oil complex to Poland's PKN Orlen (rather than to a Russian company), Russian oil shipments to the Lithuanian complex were cut off, ostensibly due to a rupture in the pipeline supplying the facility.

Outlook and Implications

Taken individually, these episodes could be seen as merely coincidence, but together, a pattern emerges that clearly undermines Russia's assertions that these disruptions are "technical" in nature. The frequency of these "coincidences" in which Russia reduces oil supplies following an action by the importing state's government that angers the Russian government belies the argument that there is any commercial or technical aspect to the subsequent Russian response. Given the growing number of such incidents, it is hard to argue with the widespread perception that the Russian government is using its control over energy supplies as a tool of foreign policy, particularly in Russia's relations with Eastern Europe and the former Communist states.

Ironically, the chief examples of Russia's use of energy as a political weapon have come in these episodes of oil supply reductions, whereas most of the fear quotient in Europe centres on a potential Russian gas supply cut-off. However, Gazprom's disputes and subsequent supply cut-offs or reductions with Belarus and Ukraine over the past three years have emanated almost entirely from commercial issues, predominantly over pricing battles. Gazprom's reputation as a reliable supplier to Europe has suffered from the perception that Russia is playing politics with gas supplies, even when it is not doing so. Yet speculation persists, largely due to incidents such as this latest episode with the Czech Republic. If Russia truly wants to be seen as removing the politics from its supply relationship with consumers of Russian oil and gas, the government must stop undermining its own argument and end this pattern of "coincidental" supply disruptions.

Related Articles

Russia: 16 July 2008: Tatneft Says Russian Oil Exports for Czech Republic Re-Routed to Turkey

Czech Republic: 15 July 2008: Unipetrol Boosts IKL Crude Supplies in Response to Russian Shortfall

Czech Republic: 14 July 2008: Russian Oil Deliveries to Czech Republic Fall Amid Growing Tensions

Russia: 15 May 2008: New Oil Product Export Terminal in Russia Spells Trouble for Baltics' Transit Business

Russia: 22 May 2007: Russia Approves Belarus Oil Pipeline Bypass Plan

Russia: 7 May 2007: Russian Rail Oil Product Exports via Estonia Re-Directed as Tension Lingers

Estonia: 3 May 2007: Russia Halts Oil Exports to Estonia as Political Tensions Rise

Lithuania: 22 March 2007: Lithuania's Mazeikiu Again Left Off Russian Oil Export Schedule

Russia: 31 January 2007: Transneft Mulls Substantial Capacity Increase for BPS Following Belarus Oil Dispute

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