Page 6 - FSUOGM Week 01 2023
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FSUOGM                                        COMMENTARY                                            FSUOGM




       Putin decree bans exporting oil to





       “unfriendly” countries using oil





       price cap scheme






       Russia has finally made its response to the EU price cap on its crude, but the impact of
       the measure will not be shown until the market price rises above the threshold



       WHAT:             RUSSIAN President Vladimir Putin signed  following the announcement of the new Russian
       The Kremlin has banned   a decree on December 27 that bans oil and oil  measures remained stable, but analysts say that
       oil sales to any countries   product exports to any country that has signed  that may be due to a concurrent fall in demand
       that abide by the West's   up to the oil price cap scheme that came into  on the market. Russian Urals oil traded above
       price cap.        effect in the first week of the same month and  $56 per barrel on December 28, below the price
                         setting the cap at $60 per barrel, newswires  cap level.
       WHY:              report.                                The EU, the UK and the US have already
       Moscow is threatening its   Currently the cap has no effect, as Russia is  banned the imports of Russian seaborne crude,
       key non-Western buyers   selling its Urals blend of oil at prices below the  as part of the fifth package of sanctions intro-
       not to comply.    $60 cut-off level, but after three weeks of deliber-  duced in April, but the EU has made exemptions,
                         ation, the Kremlin has decided to strike back and  particularly for Greek shipping companies that
       WHAT NEXT:        ban exports to any country that has in principle  rely heavily on Russian business. The Institute
       Even if major Asian   accepted the scheme.             of International Finance (IIF) reported that the
       buyers of Russian oil   The Russian ban on crude exports comes into  volume of oil shipped by Greek companies has
       such as China and India   effect on February 1, but does not include a ban  risen from 35% pre-war to 55% in December.
       do not officially comply   on the much more widely distributed oil prod-  However, the share carried by Greek shipping
       with the price cap, they   ucts, which are the subject of a separate embargo  has fallen since the embargo came into force,
       will de-facto comply and   that only comes into effect on February 5.  partly as it appears many Greek companies have
       insisting that Russian   The ban applies to crude oil supplied under  sold their tankers to Russia, Bloomberg reports.
       sellers give them a price   contracts that "directly or indirectly" stipulate   The new Russian decree will mainly apply to
       below $60 per barrel.  the $60 price cap, the Kremlin said.  other countries that still buy Russian oil, such as
                           It is not clear if it will apply to oil priced below  customers in Asia. Insurers for the oil market,
                         $60 per barrel under contracts that do not men-  which are mostly based in the West, are banned
                         tion the price cap.                  from dealing with Russian oil priced above the
                           The decree was presented as a response to  cap, but not if the contract price for oil is less than
                         “unfriendly" actions by the United States and its  $60.
                         allies.                                In December after the embargo came into
                           "Deliveries of Russian oil and oil products to  force Bloomberg reported that exports of Rus-
                         foreign entities and individuals are banned, on  sian crude more than halved. Analysts warn
                         the condition that in the contracts for these sup-  that weekly data on oil shipments is volatile but
                         plies, the use of a maximum price fixing mech-  believe that shippers are being careful until it
                         anism is directly or indirectly envisaged," the  becomes clear how the new rules work. Some
                         decree stated, referring specifically to the United  speculate that like the self-sanctioning by oil
                         States and other foreign states that have imposed  traders during the uncertainty of the first few
                         the price cap, Reuters reports. "The established  months of sanctions traders will take at least
                         ban applies to all stages of supply up to the end  a month to work out new routes that are not
                         buyer."                              exposed to secondary sanction risk.
                           The decree, which includes a clause that   Russia is the world's second-largest oil
                         allows for Putin to overrule the ban in special  exporter after Saudi Arabia, and a major dis-
                         cases, stated: "This...comes into force on Febru-  ruption to its sales would have far-reaching con-
                         ary 1, 2023, and applies until July 1, 2023."  sequences for global energy supplies, Reuters
                           The Kremlin has also threatened to reduce  reports.
                         oil production by 7% as a response to the ban   The oil embargo is designed with the goal
                         that could send oil prices soaring. The price of oil  of reducing the oil revenues for the Russian



       P6                                       www. NEWSBASE .com                     Week 01   04•January 04•2022
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