Oil market gets the jitters after Russians close Belarus pipeline

Oil markets reacted nervously yesterday to Russia's shock move to halt supplies to Belarus in what appeared to be a carbon copy of its dispute with Ukraine exactly a year ago.

Crude prices initially rose by more than a dollar to nearly $57 before falling back later in the day to close slightly lower at $55.47 as dealers gained comfort from the abnormally mild weather in the US which has reduced domestic American demand and pressure on US inventories.

The price of oil has fallen by more than $5 since the start of the year despite an announcement from Opec that it intends to cut production from the start of next month. But the latest flare-up between Russia and one of its near neighbours will raise fears once again over market instability and the security of supplies to western Europe.

The 2,500-mile Druzhba pipeline, which was shut down yesterday because of the pricing dispute between its Russian operator Transneft and Belarus, carries about one-fifth of Russia's oil exports to Europe and is a major source of supply to countries such as Germany, Poland, Slovakia and the Czech Republic.

The EU Energy Commissioner Andris Piebags said there was no immediate risk to Europe's energy supplies. Nevertheless, Russia's action will intensify pressure on the European Commission to take steps to bolster the security of Europe's energy supply when it unveils its EU energy review tomorrow.

The review, carried out by the EU Competition Commissioner Neelie Kroes, has principally been about opening up Europe's energy market by tackling the monopolies that continue to exist in many member states. However, Brussels is facing calls for the remit of the review to be widened to take account of Russia's actions.

Robert Amsterdam, defence lawyer for Mikhail Khodorkovsky, the jailed Russian oligarch and former head of oil giant Yukos, said: "The dispute between Belarus and Russia should act as a wake-up call to the EU Commission. It cannot allow Russia to retain its stranglehold over Europe's energy supplies without any transparent agreement to legal principles. The European Commission must use its Strategic Energy Review to address concern over EU energy security. This will be the most important policy statement on energy in the Commission's history."

Mr Amsterdam added that the relationship between the EU and Russia had become "seriously unbalanced" in Moscow's favour and said the Commission needed to negotiate a restructuring of the state-owned Russian energy giant Gazprom and market entry into Russia by European energy companies.

The EU energy review is expected to point to evidence of collusion and market failure in a number of member states and hasten efforts to break up vertically integrated monopolies in countries such as Germany.