Russia is refusing to sell crude oil under the price cap mechanism implemented by the G7 and EU to limit Moscow’s energy revenues, according to Deputy Prime Minister Aleksandr Novak. He stated that Russian oil companies are complying with a presidential decree that requires them to avoid Western-imposed price limits in their contracts with foreign buyers. Novak emphasized that Russian crude is being traded at market prices.
Novak explained that when the price ceiling was initially introduced, Russia expressed its concerns about its effectiveness. He argued that such a measure worsens the situation for consumers and the global energy market. In response, the Russian president issued a special decree that allows Russian companies to disregard delivery terms that fall under the price cap in their contracts. Novak assured reporters that Russian companies are strictly adhering to the decree and that the government is closely monitoring their compliance.
In December 2022, the EU, G7, and allied countries imposed an embargo on Russian oil and implemented a price cap of $60 per barrel. Similar restrictions were put in place in February for exports of Russian petroleum products. The main objective of these measures was to reduce Russia’s energy revenues.
In response to these actions, Russian President Vladimir Putin signed a decree that took effect on February 1. The decree introduces retaliatory measures against countries applying a price cap on Russian oil exports. It prohibits the supply of oil and petroleum products to these countries and also forbids deliveries if a contract directly or indirectly references the price cap.
Novak highlighted that current market conditions have led to an increase in Brent prices and a decrease in the discount on Russian oil. He stated that Russian products are now being sold at market prices, which are above the price ceiling imposed by Western countries.
Furthermore, the Russian government has announced its decision to gradually reduce the discount on Russia’s flagship Urals blend of crude oil to the Brent benchmark. This move aims to offset the negative impact of falling Urals prices on budget revenues.
The surge in global oil prices also contributed to Russia’s decision not to sell crude under the price cap mechanism. Oil prices experienced a significant increase of nearly 30% in the third quarter of this year due to restricted supply resulting from production cuts agreed upon by OPEC and its allies, including Russia. As of Tuesday, Brent futures stood at $90.8 per barrel, US West Texas Intermediate crude (WTI) was trading at $89.2 per barrel, and Urals was quoted at $80.2 per barrel.
In conclusion, Russia is defying the price cap mechanism imposed by Western countries and is selling crude oil at market prices. The Russian government has taken retaliatory measures to counter the price cap on Russian oil exports. As oil prices continue to rise, Russia’s decision not to comply with the price cap is expected to boost the country’s energy revenues.