Page 122 - RusRPTOct22

Russian President Vladimir Putin said on September 16. Putin’s remarks came following his meeting with Turkish counterpart Recep Tayyip Erdogan on the sidelines of the Shanghai Cooperation Organisation (SCO) summit held in Samarkand. "In the near future, our agreement on the supply of natural gas of Russian origin to Turkey with payment for 25 percent of these supplies in Russian rubles should come into force," Putin said. "As far as I understand, the [relevant] issues have been agreed upon, so I am sure that work in this regard will proceed in accordance with our agreements," he added. Prior to the meeting, Erdogan briefed reporters that he intended to ask Putin for a discount on gas supplied to Turkey. After the meeting, there was no announcement on any agreed direct discount, though the ruble-payment arrangement should allow Turkey to ease pressure on its meagre FX reserves.
US commits to price ceiling for Russian oil. The USA’s price cap on Russian oil will complement Europe’s upcoming embargo. Although it may reduce export volumes for a few quarters, it is likely to only modestly lower oil company EBITDA and government revenues, but raise world oil prices.
The US to sanction anyone paying above a set price ceiling: According to the text of remarks made by Deputy Secretary of the Treasury Wally Adeyemo late last week, the ceiling will be imposed by the USA acting in concert with the EU and other countries, and will be achieved by withholding financial and other services from any ships carrying Russian oil not sold at or below the targeted prices. Any actors attempting “to evade the price cap by falsifying documentation or otherwise hiding the true origin or price of the oil” will face legal consequences. The price caps on oil are to begin on Dec. 5, and on refined products on Feb. 5, in concert with Europe’s planned embargoes.
Two miscalculations, we think: According to Mr. Adeyemo, without insurance, trade finance, banking, brokering, and navigation services (via the Denmark Straits, in particular), Washington believes Russian oil exports can either be made impossible or so expensive that Russia will lose substantial revenues either way. Mr. Adeyemo also stated that Russia will “will be forced to continue selling” oil under a price cap, “or risk long-term degradation of its capacity to produce” due to antiquated equipment. Both of these assumptions may be based on miscalculations.
· First, we think Russia has more production flexibility than many external experts realize. The country’s oil companies have twice made quick, significant cuts in production in the very recent past (1.9mmbpd in May 2020 as a part of OPEC+’s reaction to the COVID-19 crisis, and 1mmbpd this past Spring in response to the initial attempts by Europe and the US to reject Russian oil), and in both cases production was re-ramped substantially afterwards.
122 RUSSIA Country Report October 2022 www.intellinews.com