Czechs See Shenanigans in Oil Cuts

The Czech Foreign Ministry finds implausible Russia's explanation that oil supplies have dipped for technical reasons, the Czech Embassy in Moscow said Monday, after a meeting in Prague meant to assuage fears that the Kremlin was punishing the Czech Republic for backing U.S. missile-defense plans.

Coming in the same week that Russia vetoed UN sanctions on Zimbabwe and Gazprom signed an agreement that could extend its reach into Iran, the oil cut signals that the West's honeymoon period with President Dmitry Medvedev could be over, analysts said.

"Russia has provided no plausible explanation so far, except that there are problems with oil extraction on their oil fields," the Czech Embassy said in a Foreign Ministry statement posted on its web site. "But this is hard to believe, given the fact that neighboring countries face no cuts whatsoever."

It added: "We do not want to speculate about the true reasons. Up to date, Russia has never used energy as leverage against any EU member state, and we do hope that the Czech Republic is not being used to set the precedent."

Transneft, the state-run oil pipeline monopoly, cut shipments by about half last week and informed Czech officials of the drop on Thursday -- just two days after U.S. Secretary of State Condoleezza Rice secured Czech approval to host a tracking radar for a U.S. missile-defense system, which Russia fiercely opposes.

At a meeting inside the Russian Embassy in Prague on Monday, Russian officials told representatives from the Czech Industry and Trade Ministry that the cut in supplies was "technical."

"They excluded political reasons," a trade ministry spokesman, Tomas Bartovsky, said after the meeting, news agencies reported from Prague. "The reasons are on the side of extraction and business relations between suppliers."

EU Energy Commissioner Andris Piebalgs has been informed of the dispute, his spokesman said. "The commissioner is following the situation very closely," spokesman Ferran Tarradellas Espuny said.

The Czech Republic gets about 80 percent of its oil through the Druzhba pipeline from Russia, taking in 460,000 tons per month. That amount dipped by 60,000 tons in June and a further 45,000 since the beginning of July, the embassy statement said.

Transneft told Prague that it should expect supplies to dip by 60 percent in all during the month of July.

The supplies are delivered to three refineries. One belongs to Unipetrol, which is majority-owned by Poland's PKN Orlen, another to Shell and the third to Italy's Agip, the statement said.

The Czech Foreign Ministry's political reading into the supply cut raised the specter of a hallmark of Vladimir Putin's presidency, when several erstwhile eastern allies saw dips in energy shipments as they inched closer to the West.

Transneft vice president Mikhail Barkov denied that the cut was tied to the missile-defense project. "There's no relation to politics. It's purely commercial," he said, Interfax reported.

He said the Russian firms who supply the crude, Tatneft and Bashneft, have decided to boost the amount they refine domestically, and another Russian firm would soon step in to fill the supply gap.

"I don't think this will happen tomorrow, but it won't be long. One company is already interested in working on this," he said, declining to name the firm. Barkov was unavailable for further comment.

"It is true that domestic processing is more lucrative, but there is hardly anybody in Europe that will not read this as a political reaction," said Chris Weafer, chief strategist at UralSib. "To EU legislators it also reinforces the fear of increasing dependency on Russian energy and their determination to block further encroachment."

Prague would seek support within the EU if Russia did not quickly fix the problem, the Czech statement said.

The incident comes just two weeks after the EU and Russia kicked off a long-delayed round of talks on a new agreement due to govern their foreign and economic relations. Analysts expect negotiations to be tough, as longtime EU members and major gas importers like Italy and Germany face off with newer members with a historical mistrust of Moscow.

Czech officials say they are not facing an energy crisis, with a backup oil reserves that can supply the country for up to three months. Unipetrol, the country's main refiner, has also boosted shipments through an alternative pipeline, the IKL from Germany, built in the 1990s to diversify routes from Russia.

Unipetrol spokeswoman Blanka Ruzickova declined to speculate on reasons for the drop in supplies, saying the company believed there were "technical and organizational problems."

"I want to believe that reasons which the Russian supplier states are only technical," Czech Prime Minister Mirek Topolanek said Monday, Reuters reported. "The government is not going to take any steps because at the moment there is no threat for the citizens, thanks to diversification of supplies."

Elena Herold, an analyst at Washington-based PFC Energy, said the cause was likely political, designed to punish Prague for its support of U.S. missile defense. It could also be a means of sending a signal to Belarus, through which the Druzhba pipeline passes, she said.

Belarus hiked transit duties on oil passing through the Druzhba pipeline in early 2007, following a bruising dispute with Moscow over Russia's increased export tariffs.

The dispute prompted Russia to shut down Druzhba for three days, cutting exports to Germany, Poland, Hungary, Slovakia and the Czech Republic and leading top Russian officials to acknowledge that the country's reputation as a reliable energy supplier had been damaged.