June 01, 2007

Russia: Punishing the Baltics with a Broken Pipeline

Source: Stratfor

June 01, 2007 18 51 GMT


Russia announced June 1 that it will not repair the section of Druzhba oil pipeline running to Lithuania that ruptured nearly a year ago. Russia said it will now exclusively supply Lithuania and its large Mazeikiu Nafta refinery via sea -- which will up the cost both for Lithuania and for the refinery owner, Poland's PKN Orlen. The announcement, not coincidentally, comes the day after Lithuania's bold statement that it wants to join in on U.S. plans to build a missile defense shield in Central Europe, much to Russia's ire.


Russia will not repair the ruptured section of Druzhba oil pipeline running to Lithuania, Russian Energy and Industry Minister Viktor Khristenko said June 1, nearly a year after the rupture occurred. Russia's decision to admit that it is not going to fix the pipeline could be its response to Lithuania's bold statement the day before that Vilnius wants to take part in U.S. plans to build a missile defense system in Central Europe.

The spur of the Druzhba pipeline from Russia to Lithuania ruptured July 29, 2006, cutting off 324,000 barrels per day (bpd) of oil -- the majority of which went to the region's Mazeikiu Nafta refinery. At first Russia said it was fixing the rupture, but the pipeline remained closed indefinitely while Russia's negotiations to buy the Mazeikiu Nafta refinery went sour and Poland's PKN Orlen won the purchase. The actual pipeline rupture was most likely not intentional; Russia's pipeline infrastructure is around 40 years old and in deep decay (the Druzhba's ruptured section was actually in better shape than most of the 2,500-mile system). However, it is no secret that Russia has used such infrastructure problems as a pretext to throw its weight around.

Since the rupture, Russia has sent sporadic shipments to Mazeikiu Nafta by sea -- which is more expensive -- to make up for the cut in supplies. Khristenko said June 1 that Russia will send all supplies by sea now, because the ruptured section of the Druzhba cannot be fixed and Russia would have to re-lay the entire section of pipeline. Russia naturally would prefer to make Lithuania and PKN Orlen pay for the increased costs than have to pay for new pipeline itself. The price difference between sending oil via pipeline and sending oil via ship might only be a few dollars per barrel, but when a refinery receives 300,000 bpd those costs can add up fast. Furthermore, Lithuania receives 90 percent of its oil via the Druzhba, and the Mazeikiu Nafta refinery provides 10 percent of Lithuania's $25.5 billion gross domestic product. Lithuania -- not to mention Latvia and Estonia, which also are major recipients of supplies from both Mazeikiu Nafta and Druzhba -- cannot afford to have these supplies cut.

Russia's decision to admit that it simply is not going to repair the Druzhba rupture follows a month of worsening relations between Russia and the Baltic states. Russia is locked into a remarkably tense spat with Lithuania's neighbor, Estonia, after a Soviet statue was dismantled in Tallinn on April 26-27. The quarrel erupted into protests in Russia and Estonia, and a string of threats and blockades. During the conflict, Lithuania -- along with Latvia and Poland -- said it fully backed Estonia and also would be willing to block any new ties between the European Union and Russia.

Moscow's eye turned directly on Lithuania on May 31, when Lithuanian Defense Minister Juozas Olekas said his country wants to host the U.S. missile defense shield in Eastern Central Europe. Lithuania has always expressed its support for the shield being negotiated with Poland and the Czech Republic, but has pushed its support even further -- much to Russia's indignation. Russia has answered with its punishment for such comments. What remains to be seen is how much further this struggle will fracture the European Union’s relationship with Russia -- and how much longer the other EU members will allow the Baltics and Poland to continue dragging them into the conflict

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