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Oil Politics May Derail EU-Russia Talks

For the past eight months, Lithuania’s only oil refinery, Mazeikiu Nafta, has been deprived of its supply of crude oil from Russia, as state monopoly Transneft has cut off the link from the Druzhba pipeline citing apparent “leakage problems.” Now it seems the Lithuanians are willing to leverage this grievance to disrupt the EU-Russia talks scheduled for next week, much like Poland did last time during its dispute with Russia over bans on meat exports.

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This weekend, the media reported the following comments:

“We would like the issue [of crude supply] to be discussed at the spring European Council” meeting of EU leaders, Deputy Foreign Minister Zygimantas Pavilionis told reporters. … “We think that the EU should influence the process. We have asked the [EU] presidency, but nothing has happened,” he added. Pavilionis said unless the EU put pressure on Russia to reopen the Druzhba link, “There is an idea to block the mandate for talks with Russia.” “We can become another Poland,” he said, referring to the Polish decision late last year to veto the launch of EU-Russia talks on a wide-ranging cooperation agreement. … “The leak can be fixed in several weeks, but eight months have passed already and nothing has happened. It is a political act,” Pavilionis said. The Lithuanian Foreign Ministry said earlier last week it still expected Russia to provide a schedule for the pipeline repairs.

Russia’s political motivation for cutting off the oil supply to Mazeikiu Nafta is particularly illustrative of the standard operating procedure of the new energy imperialism. A few years back, Yukos owned a majority stake in Mazeikiu Nafta, and last year an agreement was reached to sell this stake to the Polish firm PKN Orlen. This move infuriated the Russians, who had wanted the Mazeikiu stake to be usurped by Gazprom or another state-held company at a discount price, and has since embarked on a campaign of obstruction to starve the Lithuanian refinery of value until PKN Orlen abandons the acquisition. A closer look at most of the recent supply cut offs reveals that the objective of the Kremlin is usually to acquire majority stakes in refining, transportation, and distribution networks in the countries they are targeting. It is this kind of anti-competitive behavior that violates market principles for politics, and creates dangerous distortions in asset value and oil and gas prices, not to mention the negative impact on Russia’s reputation as a reliable supplier. In a fair market, a property should go to the highest bidder, not to the party that wields the biggest threat.