Ukraine halted Russian oil pipeline flows to Europe over payment issue

Ukraine has suspended Russian oil pipeline flows to parts of central Europe since early this month because Western sanctions prevented it from accepting transit fees from Moscow, Russian pipeline monopoly Transneft said on August 9.

International benchmark Brent crude jumped by $2 per barrel to trade near $98 as the news added to energy supply concerns, but turned negative later in the day, according to Reuters. 

Europe is heavily reliant on Russian crude, diesel, natural gas and coal. Energy prices have rallied this year on short supply as Europe scrambles to replace Russian energy with alternative sources.

Flows along the southern route of the Druzhba pipeline have been affected while the northern route serving Poland and Germany remains uninterrupted.

The suspension of pipeline flows on Tuesday will hit countries such as Slovakia, Hungary and the Czech Republic, which all rely heavily on Russian crude and have limited ability to import alternative supplies by sea.

The fact that refiners have to import seaborne oil on such short notice will make the job to secure alternative supply even more difficult in an already tight oil market, traders said.

Hungarian energy firm MOL and Slovak pipeline operator Transpetrol confirmed flows have been halted for a few days over the payment of transit fees.

MOL said it have had reserves for several weeks and was working on a solution. MOL's oil refiner Slovnaft said that it initiated discussions with Ukraine and Russian partners on possible payment of the transit fee by Slovnaft or MOL.

Hungary is one of the most reliant countries on Russian oil and its government has been lobbying hard to get an exemption from wider EU sanctions on Moscow.