There was a tricky loophole in Putin’s decree against the “ceiling” of oil prices

“In fact, Moscow leaves the right to buy raw materials to everyone”

Moscow kept its promise: Putin signed a decree on Russia’s response to the West’s introduction of a “ceiling” on oil prices. Our country has refused to sell “black gold” to foreign consumers who have joined in limiting the cost of Russian raw materials to $60 per barrel. Although the ban contains a number of loopholes that allow our producers to continue trading relationships with buyers, the losses of the domestic extractive industry and the entire economy will amount to tens of billions of dollars.

Analysts believe that Moscow’s retaliatory measures, which followed the introduction by the EU countries and G7 members of the marginal cost for Russian oil, have become a relatively mild version of anti-sanctions. The presidential decree prohibits the supply of raw materials not to specific states, but to “foreign citizens and companies”, in whose contracts for the purchase of hydrocarbons one way or another there will be a reference to the use of the price “ceiling” mechanism. “This is unacceptable. If there is no reference to the “ceiling”, then (the ban on the supply – “MK”) does not apply,” said Dmitry Peskov, press secretary of the head of state.

In addition, in some cases, on the basis of a “special decision” by Vladimir Putin, an exception can be made that provides importers with the opportunity to purchase Russian oil.

“In fact, Moscow leaves the right to buy raw materials to everyone, as long as the supply agreements do not mention the price “ceiling” set by the West,” explains Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation and the National Energy Security Fund. “The softest option chosen by the state to respond to Western restrictions will allow domestic producers to maintain and debug exports in today’s difficult geopolitical conditions.”

The cost of the world oil benchmark Brent reacted weakly to official announcements about the introduction of the Russian response to the Western price “ceiling” – its quotes remained in the corridor of $ 80-85 per barrel, which has been maintained for the past two weeks. The Russian grade Urals, on the contrary, added a few percent in price, however, due to the fact that domestic energy resources continue to be traded at a significant discount, the cost of a sanctions “barrel” from our country now barely reaches $55.

Meanwhile, representatives of the European Union do not cease to give increasingly gloomy forecasts regarding the consequences of the energy confrontation between the collective West and Russia. In particular, Christian Kopfer, an analyst at the Swedish bank Handelsbanken, predicted a significant increase in oil prices after Moscow’s decision to ban supplies to foreign buyers who approved quote limits. “The price ceiling and Russia’s response measures were known in advance, so the initial market reflex turned out to be blurred and insignificant,” said Georgy Vashchenko, deputy director of the analytical department at Freedom Finance Global. – Nevertheless, the trouble is the beginning. The price of oil in the baseline scenario in 2023 will tentatively be in the range of $100-130 per barrel, and shocking surges up to $150 due to interruptions in the supply of energy resources are not ruled out.”

However, for Russia, the aggravation of oil and gas contradictions with European partners also does not bring anything positive. As Deputy Prime Minister Alexander Novak noted earlier, the production of “black gold” in our country is in danger of falling by 5-7% in the first months of next year. In turn, the export of raw materials may fall twice as much: the conservative forecast of the Central Bank suggests a decrease in foreign oil supplies by 11.5%. “In this case, Russia’s current and capital account surplus also threatens to fall by about half — from $243 billion in 2022 to $123 billion in 2023,” Vashchenko warns.

Meanwhile, Russia should expect a blow to oil exports not only from the West, but also from “friendly” China. In December, the most powerful outbreak of coronavirus since the beginning of the pandemic was recorded there, the number of infected people is tens of millions.

“Beijing has again classified daily reports and the number of cases. Apparently, the difficult situation in the Celestial Empire will soon reach a peak and last for several months. Negative news from the Asian region, with supplies to which Russia is going to replace the loss of the European market, threatens to turn into a general global drop in energy demand,” warns Artem Deev, head of the analytical department at AMarkets. In his opinion, the simultaneous drop in oil exports to Europe and problems in redirecting supplies to the East, caused by the lack of a marine fleet and limited pipeline capacity, as well as high discounts on our raw materials, threaten to result in financial losses for our country in the tens of billions of dollars a year. “This is the price Russia will have to pay for the oil price ceiling imposed by the West,” Deev said.