Vladimir Putin on Tuesday delivered Russia’s long-awaited response to the West’s oil price ceiling, signing a decree banning the supply of oil and oil products to countries participating in the cap starting February 1 for five months.
The G7, the European Union and Australia agreed this month to set a price ceiling for Russian crude at $60 a barrel. The cap has been in effect since December 5 due to Moscow’s “special military operation” in Ukraine.
A production cut in Russia is expected from the new year
Effective February 1
The Kremlin decree said: “This … comes into force on February 1, 2023 and is valid until July 1, 2023.” Although crude oil exports will be banned from February 1, the date for the ban on petroleum products will be set by the Russian government and may be after February 1.
The decree includes a clause that allows Putin to lift the ban in special cases.
Forecast for possible gas shortages in the EU
The vice president of the Russian Federation said it would be difficult to foresee global economic growth without Russian energy and predicted possible gas shortages in Europe, which has introduced restrictions on gas prices, as well as oil.
“We believe that based on the current situation, we have the ability to reduce oil production rather than be guided by the selling policy shaped by the price ceilings. Today it’s $60, tomorrow it can be anything, and we depend on decisions made by unfriendly countries, which is unacceptable for us ,” Novak said.
Russian President Vladimir Putin said on Thursday he would issue a decree early next week on Moscow’s actions in response to the imposed caps, which he did. Based on the Russian President’s announcement, Novak said the decree will ban the sale of oil and oil products to countries that adhere to the price ceiling and to companies that demand compliance with it.
Exports are decreasing
The sanctions have hurt sales of Russian oil, which is one of the main shares of the state budget’s revenue. Exports of Urals crude from Baltic Sea ports may drop by as much as a fifth in December.
This month, Urals crude oil was sold at deeper discounts and India bought barrels that ranged lower, from a peak of $60. Novak said the discount will stabilize soon.
He also praised the work of the OPEC+ group of top global oil producers, which includes Russia, saying the oil price is likely to remain in the current range of $70-$100 a barrel next year, barring any unforeseen events.
The markets of China and India
Russia will continue to divert flows to countries such as China and India that have not officially signed the price cap. It is recalled that Kyiv characterized the $60 ceiling as particularly high, calling for an upper limit of $30 per barrel.
Even without the price cap — along with shipping and insurance restrictions aimed at hampering Russia’s trade — the Kremlin expected a nearly 25 percent drop in oil and gas tax revenue as production and some prices fall.
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