Putin bans Russia’s sales of oil to countries imposing price cap
On Tuesday, President Vladimir Putin signed a decree that bans the supply of crude oil and oil products beginning on February 1 for five months to countries that adhere to the cap. This was Russia’s long-awaited response to a Western price cap.
In response to Moscow’s “special military operation” in Ukraine, the Group of Seven major nations, the European Union, and Australia agreed this month to a $60 per barrel price restriction on Russian seaborne crude oil, effective as of December 5.
While the cap is not far below the windfall price Russia was able to sell its oil for this year, which helped Moscow counter the effects of financial sanctions, it is close to the price at which Russian oil is now traded.
After Saudi Arabia, Russia is the second-largest oil exporter in the world, and a significant decline in its output would have a significant impact on the world’s energy supplies.
The edict was announced as a direct response to “activities that are unfriendly and inconsistent to international law by the United Governments and foreign states and international organizations joining them” and was posted on a government portal and the Kremlin website.
The decree specifically mentioned the United States and other foreign states that have implemented the price cap, stating that “delivery of Russian oil and oil products to foreign entities and individuals are banned, on the condition that in the contracts for these supplies, the use of a maximum price fixing mechanism is directly or indirectly envisaged.”
“The established ban applies to all stages of supply up to the end buyer.”
The edict read as follows: “This…comes into force on February 1, 2023, and applies until July 1, 2023. It has a provision that permits Putin to override the ban in exceptional circumstances.
Crude oil exports will be prohibited starting on February 1, but the Russian government will decide when oil products will also be prohibited; this date may be post-February 1.
The price cap, which was unheard of even during the Cold War between the West and the Soviet Union, is intended to harm both the Russian government’s finances and Moscow’s military operations in Ukraine.
According to some analysts, the cap won’t significantly affect Moscow’s present oil profits in the short term.
The oil price cap, which is reducing export income and creating an additional financial challenge for Moscow as it spends lavishly on its military campaign in Ukraine, might cause Russia’s budget deficit to exceed the anticipated 2% of GDP in 2023, according to Finance Minister Anton Siluanov.
Since weeks, Russia has been promised a formal response, and the final regulation mainly confirmed what officials had already said in public.
The G7 price cap permits non-EU nations to continue importing Russian crude oil via sea, but it forbids shipping, insurance, and re-insurance firms from handling Russian crude shipments globally unless they are being sold for less than the price cap.
EU nations have independently enacted an embargo that prevents them from acquiring Russian oil transported by sea.
Russian Urals oil traded above $56 per barrel on Tuesday, below the price cap level.
Brent crude oil moved a little higher on the news and was up 1.4% at $85.1 by 1743 GMT.