Page 6 - FSUOGM Week 01 2023
P. 6
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