Page 11 - FSUOGM Week 01 2023

FSUOGM POLICY FSUOGM

Russia strikes back in response

to Western oil price cap

RUSSIA RUSSIA has announced its long-awaited and China decide to comply with the cap. So far
response to the West’s cap on oil prices, with they have shown no sign of intending to do that.
The Kremlin has vowed President Vladimir Putin signing a new decree But they could be convinced to do so if the mar-
a response for some on December 7 that bans the supply of crude oil ket price of Russian oil significantly rises.
time. and oil products to any country that complies The Western price cap is aimed at depriv-
with the measure. ing Russia of revenues it can use to fund its war
The EU, the G7 and Australia agreed to in Ukraine. At $60 per barrel, it is close to the
impose a $60 per barrel cap on seaborne Russian current price that Russian oil sells for on inter-
oil exports on December 5, prohibiting insur- national markets, but it is also well below the
ance and shipping companies from handling windfall price that Russia has sold its crude on
cargoes sold above that price. The cap was intro- average this year as a result of the global energy
duced on the same day that the EU imposed an crisis.
embargo on most Russian oil imports. G7 coun- Such a move is unprecedented against such a
tries have likewise banned Russian oil imports. major global energy power as Russia, the world’s
The Kremlin promptly said it was considering second-largest oil exporter after Saudi Arabia.
a response, and that response has now been This type of restriction was not triggered even
revealed, potentially causing major disruptions during the most tense moments in the Cold War.
for global energy supplies. Analysts have noted that the price cap will
Announced on the Kremlin’s website, the have a limited impact on the revenues that
decree was justified as a direct response to Moscow is currently earning. But Russian
“actions that are unfriendly and contradictory to Finance Minister Anton Siluanov warned on
international law by the US and the foreign states December 29 that Russia’s budget deficit could
and international organisations joining them.” be larger than the targeted 2% of GDP in 2023,
“Deliveries of Russian oil and oil products to in part because of the squeeze caused by the
foreign entities and individuals are banned, on price cap.
the condition that in the contract for these sup- Russian crude oil and oil product exports
plies, the use of a maximum price fixing mech- rose to 8.1mn barrels per day (bpd), marking
anism is directly or indirectly envisaged,” the the highest level since April, two months after
decree stated. “The established ban applies to all Moscow invaded Ukraine. However, its reve-
stages of supply up to the end buyer.” nues nevertheless fell to $15.8bn – the second
The decree becomes effective for crude oil lowest level this year after $14.7bn in September.
sales from February 1 and applies until July 1, Now that the oil embargo and price cap are in
2023. However, it includes a clause that enables place, most analysts predict a sharper decline
Putin to overrule the ban in special cases. This in December and in the early months of next
could be employed if major buyers such as India year.™

Week 01 04•January•2023 www. NEWSBASE .com P11