'Russia mulls oil cut over sanctions'

Russia is reportedly preparing to cut oil supplies to Poland and Germany in response to threatened EU sanctions over the Georgia conflict.

European diplomats say Moscow has sent a clear signal it will retaliate if the EU imposes sanctions arising from the Georgia conflict during an emergency summit of to be held on Monday.

According to one newspaper report, rumours are circulating in oil markets about a possible cut in oil flow through the Druzhba pipeline that feeds both Poland and Germany.

Nervous traders have been monitoring the escalating row between Russia and the West over Moscow's military action against Georgia, which initially disrupted some flows.

Russia has defied US and European pressure to pull out of Georgia and the report claims executives at top producer Lukoil have been told to prepare for a possible cessation of shipments "as soon as Monday".

However, Russia's energy minister Sergei Shmatko said his country is "doing everything it can" to ensure stable oil supplies to Europe and keep its good name as a supplier despite the clash with Europe over Georgia.

Elsewhere, a senior Lukoil official in Moscow denied any knowledge of the plans while Poland said Russian deliveries are continuing to arrive and is not aware of any threat.

Russia has accused G7 nations of "bias" in response to a statement by EU foreign ministers who condemned the Kremlin's decision to recognise the break-away republics of South Ossetia and Abkhazia.

However, a senior French diplomat has said: "At the current stage, we do not expect any sanctions to be decided by the European Council. The time to pass sanctions has certainly not come."

He added relations between Russia and the European Union will be "under observation" as long as the six-point ceasefire plan brokered by French President Nicolas Sarkozy is not observed.

Meanwhile, Russian Prime Minister Vladimir Putin has accused the US of orchestrating the conflict in Georgia, and linked the row to Russia's co-operation with the West on issues like trade and nuclear non-proliferation.

A Western naval build-up in the Black Sea, an area normally dominated by its own southern fleet, has been met with alarm by Moscow.

Russia mounted a huge counter-attack on land, sea and air after its pro-Western neighbour Georgia sent in troops in a failed attempt to retake its breakaway region of South Ossetia three weeks ago.

The Kremlin said it acted to prevent Georgia wiping out the South Ossetian population but Western states accused Russia of using excessive force.

They are also concerned that the presence of Russian troops deep inside Georgia could compromise the Nato aspirant's role as a transit route for oil and gas supplies between the Caspian Sea and world markets.

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