Russia will ban the sale of its oil to countries using the ceiling price on February 1
Eva Deschamps / December 29, 2022
Russia will prohibit from February 1 the sale of its oil to foreign countries that use the cap on the price of Russian black gold, a decision that has little reaction of crude oil prices on the markets Tuesday.
This price cap had been set in early December at $ 60 per barrel by the EU, the G7, and Australia; and aims to deprive Moscow of important revenues to finance its military intervention in Ukraine.
"The delivery of Russian oil and oil products to foreign legal entities and other individuals is prohibited" if they use the ceiling price, it says in a decree signed Tuesday by Russian President Vladimir Putin.
The decree specifies that this measure will last for five months, "until July 1, 2023.
Only "a special decision" of Vladimir Putin himself will be able to allow the delivery of Russian oil to a country or countries that have implemented the price cap in recent weeks, it is stated in the decree published Tuesday.
In early December, the 27 member states of the European Union, the G7 countries and Australia had agreed, after months of negotiations, on a cap on the price of Russian oil exports at 60 dollars per barrel.
In practice, only oil sold by Russia at a price of 60 dollars or less can continue to be delivered. Beyond this ceiling, it is forbidden for companies to provide services allowing its maritime transport (freight, insurance, etc…).
Faced with Moscow's decision on Tuesday, black gold prices, already at their highest in three weeks, initially climbed but the rise was short-lived.
The price of a barrel of North Sea Brent crude for delivery in February finally ended up a modest 0.48% at $84.33.
As for U.S. West Texas Intermediate (WTI), also due in February, it gave up 0.03% to $79.53.
"There has been a very distinct reaction of prices" to the Russian announcement "but in fact, this decision is not a surprise for the market," commented Matt Smith commodity market analyst at Kpler to AFP.
This was to be expected, given everything the Russians have already said in recent months and what they have done with natural gas, refusing to sell to Bulgaria and Poland because these countries did not pay in rubles," added the analyst.
According to him, the implementation of this ban will have a limited impact, because "large buyers of Russian crude such as India or China do not apply the ceiling price" and buy it below $ 60 per barrel.
"This will tighten supply a bit, but not that much," commented Matt Smith.
The price of a barrel of Russian oil (Ural crude) itself is currently around 65 dollars, which is barely more than the ceiling set, implying a limited short-term impact of this capping measure, according to many observers.
Ukrainian President Volodymyr Zelensky deplored the "weak position" of his Western allies at the time of its implementation.
For their part, the Russian leaders had repeatedly declared that they "do not accept" this mechanism which "will have no impact" on the course of the Russian offensive against its Ukrainian neighbor.
On December 9, Vladimir Putin had threatened the West to "reduce the production" of Russian oil "if necessary", blasting a "stupid decision".
Russia is the world's second largest exporter of oil and was, in 2021, the second largest supplier of black gold to European Union countries. According to European leaders, 90% of Russian oil exports to the EU will already be stopped by the end of 2022 to protest against the Russian offensive in Ukraine.