Named the price ceiling for Russian oil: how it will affect the economy

Experts assessed the possible losses and benefits of Moscow from new restrictions on oil exports

The US Treasury proposes to set the price ceiling for Russian oil at $60 per barrel. This was stated by United States Secretary of the Treasury Janet Yellen, speaking at the autumn session of the International Monetary Fund and the World Bank. Meanwhile, Russia has repeatedly stressed that it will not supply energy to those countries that support such restrictions, since such measures have nothing to do with the basic principles of a market economy. Who will suffer the most if restrictions are imposed? Can the “ceiling” mechanism be extended to other raw materials and goods?

“Definitely, a price in this range will be sufficient to consider that Russia will be able to profit from the production and sale of oil,” Janet Yellen said. At the same time, she clarified, the ceiling price has not yet been determined, and Washington is working with its partners “to decide what it should be.”

Recall that it was the United States that came up with the idea to set a price limit for oil from Russia. At the same time, Washington has not yet succeeded in convincing all countries to impose cap prices – in particular, India and China, which are the largest oil importers. It is known that they are not ready to accept such a proposal.

Meanwhile, earlier President Putin said that Russia would not supply energy to those countries that would impose a price ceiling on oil. “I will say one thing: Russia will not act contrary to common sense, pay for someone else’s well-being at its own expense,” the head of state said.

During this year, our country has already been selling oil for export at an average price of $70-85 per barrel (with a discount to Brent in the range of $20-35 per barrel). If raw materials are sold abroad at a price of $60, this will deprive the state of income by at least 25-30%, and the government is unlikely to agree with this, Artem Deev, head of the analytical department at AMarkets, believes.

“The main threat of setting a ceiling on oil prices from the Russian Federation is that our country may generally stop supplying raw materials to those states that join this initiative. It is clear that the European market is practically closed for us (there are no sea supplies, there is only the Druzhba pipeline, which provides less than half of exports to the EU). If India and China join the price ceiling initiative, in addition to the G7, this will mean that Moscow is deprived of the largest markets not only in Europe, but also in Asia. It will be difficult to get around such restrictions, as a result, oil exports and budget revenues, which are already demonstrating a deficit, will sag,” the expert continues.

However, Aleksey Grivach, deputy general director of the National Energy Security Fund, believes that Russia will prefer to cut or completely stop oil supplies to those countries that will support the price ceiling. According to him, in the current conditions, the discount for partners, as a risk premium, is reasonable. But in this case, there should be no direct or indirect accession of the countries-buyers of our “black gold” to the sanctions policy.

The head of the Energy Development Center, Kirill Melnikov, in turn, believes that the level of the ceiling itself does not really matter. In any case, Russia will stop deliveries to those who support this ceiling. Initially, this will likely result in Russian oil exports falling and world oil prices rising, with Russian supplies at a large discount to the world price.

“Now no one can say how much exports will drop and prices will rise. We still expect a drop in oil exports from the Russian Federation in December by 1-1.5 million barrels per day, he says. – The level of the ceiling gives a certain understanding of the bar below which Russia will not sell oil even to friendly countries. Simply because if China, being the largest export destination for Russian oil, wants to buy oil from us at $50 per barrel at a world price of $80, it will be easier for Russian companies to sell it at $60 to some international trader (he will be able to buy it, since the price will be within the ceiling).

The initiators themselves may suffer from the price limit, says Mark Goykhman, chief analyst at TeleTrade. According to him, in the event of a significant drop in Russian exports, world prices risk soaring to $130-140 per barrel. The G7 states and the EU are active consumers of oil, and its rise in price when imported from outside the Russian Federation will whip up inflation there, the costs of business and the population. Russia will also suffer financially, which is not able to completely reorient supplies to other directions: due to limited demand and problems with logistics, it will be possible to replace the falling volumes by no more than 50-60%, the analyst believes.