Presidential spokesman Dmitry Peskov said that the Russian Federation will not recognize a “ceiling” in oil prices.
When asked whether Moscow is in preparation for mutual action, he replied “the decision is being prepared”. He also described the restriction as “a step towards destabilizing global energy markets”.
“We will let you know after a quick analysis how the work will be organized,” he said on November 3, saying that the authorities were making some preparations for the Western restrictions.
The ceiling price of $60 per barrel for Russian oil transported by sea came into effect on December 5. The limit has been approved by the G7 countries (USA, UK, Germany, France, Canada, Italy and Japan), Australia and the EU. Hungary was exempted from complying with the border. The purpose of the sanctions is to reduce Russian oil revenues in order to limit the financing of special operations in Ukraine. Also, on December 5, the European embargo on the supply of Russian oil by sea began to work. On February 5, 2023, the price ceiling and embargo should be extended to cover all petroleum products from the Russian Federation.
Three variants of Moscow
Sergei Kondratiev, Deputy Head of the Economics Department of the Energy and Finance Institute, suggested in an interview with socialbites.ca that Russia has three ways to respond to the oil price ceiling.
First, according to Kondratiev, Russia could formalize a ban on the sale of fuel to countries that support such a decision.
“The Russian Federation may ban oil sales to companies from the EU, USA, Canada and Australia who support the price ceiling. The same countries have banned oil purchases from Russia. Kondratiev considers their rationale to be understandable to prevent the budget of the Russian Federation from receiving additional income.
Also, according to him, Russian authorities will have to decide whether to supply fuel to Japan and Bulgaria, which officially support price restrictions.
“However, the oil supply to Japan below the ceiling price was withdrawn by the G7 countries. “As an EU country, Bulgaria supported the price ceiling while exempting it from EU sanctions.”
The economist’s second option was called limiting the supply of “sensitive raw materials”, such as nuclear fuel.
“Russia may consider the possibility of limiting the procurement of sensitive raw materials and materials from the Russian Federation for these countries. For example, EU countries are highly dependent on the supply of nuclear fuel from Russia, certain types of metals necessary for the functioning of the industrial sector.”,
Moreover, Moscow may impose its own ceiling price for this “sensitive raw material” alone and approve an above-market limit.
“Actually, while EU countries set a price ceiling below the market price for oil, the Russian Federation may set a ceiling price above the market price for the same nuclear fuel. They have a discount, we have a premium,” said Kondratyev.
According to the expert, Russia has the opportunity to impose asymmetrical sanctions that will make it more difficult for countries that initiated the oil price ceiling to work in other energy markets.
Kremlin’s reaction to the restriction
The Russian side, represented by Russian President Vladimir Putin and Deputy Prime Minister Aleksandr Novak, has repeatedly stated that it will not supply anything abroad if it goes against Moscow’s interests. Novak noted that the Russian Federation will not accept any proposed price limit and that such restrictions only mean interference with market mechanisms.
On December 4, Novak announced that Russia had developed a mechanism that would allow for a ban on Russian oil prices to be capped.
“We believe this instrument is non-market, inefficient.<...> “We are working on bans on the use of the instrument, at whatever level is set, because, as we believe, such interference could lead to further destabilization of the market.”
On November 26, Bloomberg wrote, citing a source, that the Kremlin has drafted a presidential decree that will prohibit Russian companies and any merchants buying Russian oil from selling oil to countries or businesses that support price ceilings.
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.