Having promised that it would reveal its response to the recently implemented G7 price cap on Russian oil exports, the Kremlin did not disappoint.
Russian President Vladimir Putin banned the supply of Russian oil and oil products to countries that impose a price cap, allowing deliveries to those nations only on the basis of a special permission from the Kremlin leader.
“The supply of Russian oil and oil products to foreign legal entities and individuals is prohibited if the contracts for these supplies directly or indirectly” are using a price cap, the presidential decree said.
It adds: “The established ban applies to all stages of supply up to the end buyer.”
The decree prohibits supplying oil to companies and individuals if the sale is governed by contracts that “directly or indirectly allow for the use of the price cap mechanism.”
The ban on oil sales will take effect on February 1. The decree also provides for a ban on supplying petroleum products. The government must determine the appropriate date for that ban to take effect.
Exceptions to the ban will be possible by a special decision by the president.
The deal imposing the price cap on Russian oil shipped by ship to EU, Australia, and G7 countries came into force on Dec. 5. The G7 powers, the European Union, and Australia agreed this month to cap Western prices for Russia’s Ukraine.
The cap, introduced along with an EU embargo on shipping Russian crude to shore, is meant to prevent Russia from circumventing the embargo by selling Russian crude at higher prices to third countries.
The Western price cap allows European Union countries to continue to import Russian crude by sea, but will ban shippers, insurers, and reinsurers from handling Russian crude shipments worldwide, unless they are sold at prices below the cap.
The level of the price cap, $60/bbl, is high enough to retain clear economic incentives for the Russian Federation to keep selling oil in the world markets.
The policy of the price cap is intended to preserve Russian oil supplies to global markets, reducing revenues that Russian Federation receives through its Russian Federation’s oil sales, especially in light of high prices caused by its illegal war in Ukraine.
Next week, the Coalition for a Price Limitation will prohibit the provision of a wide variety of services, including marine insurance and commercial financing—related to shipping crude oil originating from the Russian Federation (Russian Oil) unless buyers purchase oil for $60/bbl or less.
Under the U.S. price cap scheme, U.S. persons would be allowed to transport and provide services to transport Russian-sourced crude oil to countries outside of the EU/G7 Coalition, provided the oil is paid for at or below the price cap, from the time that crude is sold to the Russian entity to the time that the first landing sale occurs following customs clearance to a non-Russian jurisdiction.
Moscow wants to “reduce partial production at the beginning of next year … [by] somewhere between 500,000 and 700,000 barrels per day,” according to Russia Deputy Prime Minister Alexander Novak added.
Novak said the measures would “interfere with market pricing.”
He added: “We do not accept any interference in the energy markets, in general in market instruments, because in fact it will only lead to risks, to a shortage of resources in the energy market, to rising prices.
The Kremlin has said it would cut off oil production and prohibit sales to countries that are party to that price cap. This, however, is the first time the Kremlin has elucidated how much production it would cut in response, as well as how it would manage demands for changes in existing oil supply contracts.
Cover image: Kremlin.ru