Putin Signed Decree on Countermeasures to Introduction of Russian oil Price cap

Putin Signed Decree on Countermeasures to Introduction of Russian oil Price cap

Photo: http://kremlin.ru

The decree of Russian President Vladimir Putin on the response to the introduction of the ceiling on Russian oil prices was published on the official Internet portal of legal information.

This document is effective from February 1, 2023 and will be valid until July 1 of the same year. The decree states that supplies of Russian oil and oil products to foreign legal entities and individuals are prohibited, provided that the contracts for these supplies directly or indirectly “envisage the use of the price ceiling fixing mechanism.”

It is noteworthy that the ban applies at all stages of supply up to the end buyer. However, there are exceptions: supplies may still be carried out on the basis of a “special decision of the President of the Russian Federation.”

The government expressed confidence that such measures will not harm the Russian economy, but the price of oil may rise sharply – and it will become a way to the destruction of the global energy industry for the countries of the West. Moscow has repeatedly warned that Russia will never accept the destruction of market pricing and considers all sorts of restrictions unacceptable.

As stated by Deputy Prime Minister Alexander Novak, we will be able to produce at least 490-500 million tons of oil in the coming year, and despite the bans, oil and petroleum products “will be in good demand in the market.” In his opinion, it is quite possible that in the coming year “we will have to reduce” production in certain periods by 7-8%.

“What's most important is logistics, and Europe will have nothing to replace Russian oil products with, so we'll see what decisions they make,” Novak said.

As if responding to the Russian deputy prime minister, some EU countries are already asking for an exception for them. Thus, Warsaw and Berlin, who intended to refuse Russian oil at all, have already applied for 2023. This was to be expected, and the expert community is confident that oil will be the backbone of global energy for at least several more decades, and its prices will only grow.

By the way, one of the factors of oil prices growth is the reduction of its supply volume, and this will primarily depend on the lack of investment in future production. Besides, the cessation of sale of oil from strategic reserves of the USA and weakening of covid restrictions in China are the factors of price growth.

In the near future, Russia will have to develop alternative routes for supply of oil products to those states, which did not support the price ceiling. These are major consumers of hydrocarbons, such as the countries of South-East Asia. According to analysts, the price per barrel will not rise higher than $110 next year. As for the price of Brent, it will probably drop below $75 a barrel and may not rise higher than $110. Clearly, geopolitics continues to weigh on prices. Also, prices are affected by the economic recession in developed countries, the introduction of price ceilings on oil and demand for energy in China.

Recall that from December 5 an embargo on Russian oil, delivered to the European Union by sea, came into force. The EU has agreed on a ceiling of prices for energy resources from Russia at $60 a barrel.

Against the background of the special military operation to protect Donbass, which began on February 24, 2022, EU countries decided to reduce their dependence on Russian energy resources, thereby causing a sharp increase in the price of food, fuel and utilities. The Ministry of Energy of the Russian Federation will control the implementation of countermeasures to the unfriendly attacks of the European Union, which together with the Ministry of Finance will provide official clarifications on the application of the ban.

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