Belarus announced Wednesday that it had reached a compromise with Russia in a dispute that has halted oil flows along a key pipeline to Europe after telephone talks between the two countries` presidents, according to AP.

      The Kremlin didn`t confirm any agreement although it said in a brief statement that Presidents Vladimir Putin of Russia and Alexander Lukashenko of Belarus had held telephone talks on the oil transit battle.

      Analysts suggested that Russia was distrustful of Belarus and additionally that Lukashenko could be seeking to pressure the Russians into concessions by trumpeting an accord in the eyes of the West.

      "In the course of the conversation, a compromise was found which enables us to resolve the current deadlock, including concerning the transit of Russian oil to European countries through the territory of the Republic of Belarus," the Belarusian presidency`s press service told The Associated Press.

      The press service added that Presidents Putin and Lukashenko had ordered their prime ministers to work out within two days a package of measures to resolve the dispute and submit them for approval by the two leaders on Friday.

      On Monday, Russia stopped pumping oil to Europe via the Druzhba, or Friendship, pipeline that crosses Belarus, accusing its neighbor of siphoning off oil. By Tuesday, the stoppage had affected supplies to Ukraine, Germany, Poland, Hungary, the Czech Republic and Slovakia.

      The oil shortages have caused more damage to Russia`s reputation as a key energy supplier to the European Union, one year after a price dispute with Ukraine led to a brief interruption of EU gas imports from Russia. EU leaders have strongly criticized the shutdown of the oil pipeline.

      The dispute centers on Russia`s decision to impose a hefty duty on oil exports to Belarus, with Moscow complaining that the previous duty-free regime has been costing the Russian budget up to $4 billion a year. In response, Belarus announced a transit fee for Russian oil shipments crossing its territory.

      Minsk, whose isolated regime is tied to Moscow through a loose union treaty and relies on cheap Russian energy and duty-free trade with Russia, hit back by slapping duties on Russian oil pumped across Belarus to Europe.

      Putin took a harsh stance at a Cabinet meeting Tuesday, ordering his government to work out a set of measures aimed at Belarus to protect the national economy.

      Putin also told ministers to consider a possible reduction in oil output _ an indication the standoff could drag on. Russia has a limited capacity for refining oil and would have to cut crude output if its exports decrease suddenly.

      Talks between Belarus and Russia broke up in failure Tuesday after Moscow insisted that Minsk annul the oil transit fee.

      The Russian business daily Vedomosti reported Wednesday that Russia was planning to impose duties on more than half of Belarusian imports, in what would deal a heavy blow to Belarus` inefficient, state-dominated economy.

      Analysts say that Putin has grown tired of supporting the authoritarian Belarusian leader, who has been dubbed the "last dictator in Europe" by some Western governments for his undemocratic rule and crackdown on dissent.

      But the disruption of Russian oil to Europe one year after the Ukraine gas cutoff alarmed European officials and led to renewed calls for energy diversification. Russia currently supplies a quarter of the EU`s oil and over two-fifths of its natural gas.

      Yevgeny Volk, head of the Russian office of the conservative U.S-based Heritage Foundation think tank, said that the reported agreement, if true, was still only a verbal one.

      "No one in Moscow trusts Lukashenko, who is a master of bluff and who has deceived Russia on many occasions," he told the AP.

      But it was equally possible that the Belarusian leader was playing a complicated game with Russia, he said.

      "Lukashenko knows Russia is under immense pressure from the West and the Russian image has suffered tremendously from the interruption of oil deliveries. ... One of his goals is to push it into an early compromise," said Volk.