Russia prepares cautious response to EU price cap
The price cap on Russian oil exports, which came into effect last week amid great anxiety over a possible export cut, has so far not elicited any dramatic reaction from Russia.
On the contrary, according to Bloomberg, Russia is considering a rather mild response to the sanctions action. Citing uncited sources familiar with the matter, Bloomberg reported that the Kremlin's reaction would consist of a decree from President Putin that would not include a minimum price for crude oil or a ban on shipments to specific countries.
According to Bloomberg's sources, the decree will include a clause that prohibits Russia from selling oil under contracts that include a maximum price clause. As stated in the report, this should not have any effect on exports because buyers are not obliged to include such a clause in their contracts under the price cap regime.
Earlier this week, the Russian business newspaper Vedomosti reported, citing informed sources, that Russia will not sell oil to countries applying price caps and that it will not sell oil under contracts that mention price caps as a condition for the sale or using it as a reference for the purchase price.
According to this second report, the decree, which is expected to be signed by President Putin in the coming days, will be in effect until July 2023 and will not affect contracts closed before December 5.
These two reports suggest that fears of an oil market disruption following the introduction of the cap may have been premature. First, the stipulation that Russia will not sell oil to countries that apply the limit is little more than symbolic.
The EU itself has banned most imports of Russian oil. The US and UK imposed similar bans earlier this year, and Japan has been exempted by both the G7 and Russia from any sanctions action that could threaten its energy security. Meanwhile, Russia's biggest buyers have made it clear they will not apply the cap.
Even the price cap itself is little more than a token move. At $60 a barrel, the cap level is currently $10 higher than the price at which the Russian flagship Urals is currently trading. Of course, if that were to change, the price cap might – or maybe not – start having an actual effect on Russian oil exports, but for now it has no real impact.
However, Deputy Prime Minister Alexander Novak said earlier this month that Russia was ready to cut oil production if necessary in response to the cap, and this could impact global oil supply, which it is already limited.
The International Energy Agency has also predicted that the price cap will affect Russia's oil production, reducing it by 1.4 million bpd next year, the organization said in the latest edition of its Oil Market Report. .
For now, however, Russian oil is flowing as usual, as are Russian fuels. Indeed, the latter are on the rise, as the EU scrambles to stockpile Russian diesel before launching its embargo on imports of Russian fuel, scheduled for February 5, 2023.
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The article Russia prepares cautious response to EU price cap comes from Scenari Economics .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-russia-prepara-una-risposta-cauta-al-tetto-del-prezzo-ue/ on Fri, 16 Dec 2022 08:00:53 +0000.