Page 6 - Russia OUTLOOK 2023

better than the circa 20% that is across Central Europe.

Everything is of course down, but only mildly. Life on the streets of Moscow is
pretty much normal and although many of the international brands have left
Russia, the parallel imports (mainly via Turkey, but also via Serbia, Central
Asia and the Caucasus) are kicking in, so most of the international brand
names are available again.

The ban on seaborne shipments of Russian crude oil to EU countries
went into effect on December 5. The ban does not apply to crude oil
transmitted by pipeline. Germany and Poland, the largest European buyers of
Russian pipeline crude, have announced that they will also suspend their
pipeline imports, which have already fallen close to zero.

A few EU buyers (Hungary, Czech Republic and Slovakia) will at least
temporarily continue to import Russian pipeline oil for about a year. Most of EU
crude oil imports from Russia, however, are now ending.

Russia must find new buyers for about a quarter of its crude oil exports. A
separate import ban on Russian petroleum products enters into force in
February 2023, which are much more widely distributed in Europe.

The G7 countries also imposed a price cap on seaborne Russian crude. Under
the agreement, maritime services related to the transport of Russian crude oil
can only be offered for oil priced below the price cap.

The price cap is currently set at $60 a barrel, but could be revised later.
Russian Urals-blend crude was already trading below the cap price before the
cap entered into force. Russian officials have discussed countermeasures to
address the price cap, but nothing has yet been decided. A similar price cap
for petroleum products should enter into force in February 2023. Another price
cap for gas is being discussed but no agreement amongst the fractious EU has
been reached on that either.

The European Commission proposed its ninth package of Russia sanctions in
December, but Hungary says energy will not be part of it. Among other things,
the latest round names a number of Russian individuals, companies and banks
not previously sanctioned, as well as further export restrictions. For example,
the export of drone engines to Russia or potential third-country suppliers is
banned. In addition, new export controls and restrictions particularly on
dual-use products are planned, including chemicals and IT components.

The shock in December was the manufacturing PMI expanded to 53.2 –
its biggest increase in more than five years. Economists believe the rise
was due to state spending as the Kremlin has put the Russian economy on a
war footing and is pouring money into manufacturing, but the services sector,
while also improving, is still in decline.

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