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MOSCOW (Reuters) - Russia ordered its oil firms on Wednesday to cut supplies to neighboring Belarus by around a quarter, in a major escalation of a trade and diplomatic dispute following the arrest in Minsk of the boss of Russian potash firm.
Trade disputes between Russia and Belarus have affected oil deliveries in the past, causing knock-on disruptions to pipeline flows via Belarus to European countries such as Poland and Germany.
Memories of those cuts, which led to oil price spikes, resurfaced this week after a major diplomatic row erupted between Moscow and Minsk.
Belarus this week detained chief executive of Russia's Uralkali (URKA.MM), the world's top potash producer, accusing him of inflicted severe economic damage following the collapse of a Russia-Belarus sales cartel.
Russia demanded the release of Vladislav Baumgertner. Uralkali controls 20 percent of the world market and is partially owned by Suleiman Kerimov, a billionaire with close ties to Russian President Vladimir Putin's administration.
"It looks like we are heading for a new trade war again," one trader with a Russian oil firm said after the pipeline monopoly Transneft ordered a cut in oil supplies to Belarus by 400,000 metric tons for September.
Transneft (TRNF_p.MM) cited environmental concerns, saying it needed to replace 700 km (440 miles) of old pipelines. "We have to speed up work as it is ecologically dangerous," vice-president Mikhail Barkov said.
Oil traders said the order was completely unexpected. Belarus relies entirely on Russian oil to keep its two major refineries running and supply the local market.
Also unexpected was Belarus' order this week to steeply raise excise taxes on gasoline and diesel, which will make sales in Belarus of refined products produced from Russian oil loss-making, traders added.
According to a decree by Belarussian President Alexander Lukashanko, excise taxes will rise by 45 percent on gasoline and 70 percent on diesel to reach $200-$250 per metric ton (1.1023 tons) respectively.
Lukashenko, in power since 1994, has a history of maneuvering between Russia and Europe to shore up his isolated leadership and Soviet-style economy.
The potash incident has led to one of the biggest diplomatic row in years with Russia's Foreign Ministry summoning the Belarusian ambassador to issue a rebuke, warning of unspecified consequences for bilateral ties.
Additional reporting by Andrei Makhovsky in Minsk,; Editing by Douglas Busvine