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Russia Cuts Back Oil Supply to Germany

One would think that Germany’s easy acquiescence to Kremlin policy and its cozy energy relations with Russian state-owned enterprises would earn it a special preferential status in Moscow – excluded from the energy supply cut offs that other former satellite states suffer whenever Gazprom in interested in acquiring infrastructure. One would think wrong. This afternoon the Financial Times reported that Russia has considerably cut back on oil supplies to Germany, provoking serious concern about the reliability of these suppliers. What’s behind this supply disruption? A run of the mill price dispute? Additional leverage on E.ON as a deal approaches? Is Russia seeking some big concessions in downstream assets in Germany, or are they seeking alternative markets? The truth is that it is far too early to tell, and far too early to sound the alarm bell about this supply reduction. However, in situations like this, it is vitally important for the supplier to be forthright and transparent in explaining what is happening. Unfortunately, so far that has not been the case: “Lukoil said the company would next week explain the cutbacks but noted there was still time to make up the shortfall for the month.” Call me crazy, but isn’t it strange to announce that you can’t explain something for a week? Some speculation over the situation is already coming out from Forbes:

One analyst, who spoke on condition of anonymity, told Forbes.com that the disruption was caused by Lukoil’s plans to build its supplies to the east – particularly in the direction of China – its focus on supplying oil to Europe via its port city of Primorsk. By supplying oil by sea rather than through pipelines, Lukoil can charge a $2 premium per barrel.

We’ll keep a close eye on this one as it develops…