BEIJING, (AFP) - Chinese Premier Wen Jiabao left here for Kyrgyzstan and Russia a day after embattled Russian oil giant Yukos said it was slashing supplies to China in a move analysts said was designed to cause maximum embarrassment in Moscow.
Russia's number one oil producer and its sole supplier of crude to China, said Monday that it was suspending deliveries to the China National Petroleum Company (CNPC), which accounts for some 60 percent of Yukos oil sales to China.
"The Chinese were told on Friday that Yukos, for purely commercial reasons having to do with the pre-financing of exports, which under the current circumstances we cannot sustain, will have to suspend for the time being exports to CNPC," a company spokesman told AFP.
Yukos, which had been due to supply a million tonnes of oil to CNPC by the end of the year, will cut off all pipeline and rail deliveries by September 28 because it is unable to finance transport and other costs, said the spokesman, who asked not to be named.
However, it would continue deliveries to another Chinese oil company, Sinopec, which is to receive about 750,000 tonnes of oil by the end of the year, the official said.
CNPC, a major supplier of China's crude oil, played down the seriousness of the decision.
"The Yukos supply of our crude oil only accounts for three percent of the oil we refine," a CNPC official told AFP.
"It won't cause a serious problem. Our company needs only to readjust its production a little bit."
Oil prices climbed higher on the news as well as concerns about the impact of hurricanes on US supplies, traders said.
The price of Brent North Sea crude oil for delivery in November rose 20 cents to 42.65 dollars per barrel in early deals, the highest level since August 23.
Analysts noted that Yukos, which is facing the auction of its main production asset, Yuganskneftegaz, as it struggles to pay off multi-billion-dollar tax claims, was seeking to put pressure on the government to step back.
Chinese officials have been seeking guarantees for the delivery of Russian oil amid the crisis at Yukos, and energy cooperation will be high on Wen's agenda when he meets Russian President Vladimir Putin and Prime Minister Mikhail Fradkov.
"Cutting even 100,000 barrels of daily exports, while not material to budgetary economics, will severely embarrass President Vladimir Putin in front of the international community," Chris Weafer from Alfa Bank in Moscow said.
Yukos's oil represents roughly seven percent of Chinese consumption and the Russian government is anxious to maintain uninterrupted supplies to the world's second-largest oil importer.
Stephen O'Sullivan, co-head of research at UFG brokerage in Moscow, described the decision as a deliberate tactic because CNPC had offered recently to pay for the transport costs and deduct them from its payments to Yukos.
"There's no real reason why they should not continue their exports to China to everybody's benefit," he said.
"But it's helpful for Yukos at this stage because it just highlights the fact that attacks on the company have some risks for Russia," O'Sullivan added.
In late August, Russian Prime Minister Mikhail Fradkov assured China that Russia would continue its oil deliveries to the nation despite Yukos's difficulties.
Yukos is racing against time to pay off 3.4 billion dollars in back taxes from the year 2000 before the government strips it of Yuganskneftegaz.
The company had made a payment of two billion dollars as of September.
Claims for 2001 are soon to be examined by the courts, with the total likely to be in excess of 10 billion dollars.
Many observers say the more than year-long investigation of the company and its jailed founder Mikhail Khodorkovsky, who faces 10 years' imprisonment for fraud and tax evasion, is the Kremlin's payback for the tycoon's political ambitions.
Prior to his arrival in Moscow, Wen will attend a meeting of the prime ministers of the Shanghai Cooperation Organization in Kyrgyzstan.
His delegation includes Vice Premier Wu Yi and seven other ministers including Foreign Minister Li Zhaoxing and Planning Minister Ma Kai.