Russia bans oil exports for countries using price cap: Why Moscow made move, who will be affected?

Russia has announced that countries and companies complying with the price cap on oil set by the West will be cut off from oil from 1 February. “The supply of Russian oil and oil products to foreign legal entities and individuals is prohibited if the contracts for these supplies directly or indirectly” are using a price cap, the presidential decree said. The countries will be banned from receiving oil from Russia from 1 February to 1 July. Let’s take a closer look: Why did Russia make this move? Moscow made the move in response to the G7, the EU and Australia earlier in December implementing a $60-per-barrel price cap on Russian seaborne crude oil from 5 December.

That cap was imposed as a response to Moscow’s invasion of Ukraine.

The decree is a response to “actions that are unfriendly and contradictory to international law by the United States and foreign states and international organisations joining them,” Russia said. “Deliveries of Russian oil and oil products to foreign entities and individuals are banned, on the condition that in the contracts for these supplies, the use of a maximum price fixing mechanism is directly or indirectly envisaged,” the decree further stated. “The established ban applies to all stages of supply up to the end buyer.” Interestingly, the decree contains a special clause letting President Vladimir Putin make exceptions in ‘special cases’. Which countries will be affected and which won’t? Russia is the world’s second largest oil exporter after Saudi Arabia, and a major disruption to its sales would have far reaching consequences for global energy supplies. The G7 nations of course –  Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States – the EU, and Australia will be affected if they adhere to the agreed upon $60 price cap. India and China, which have become the two biggest purchasers of Russian oil since, might gain an advantage. Officials told Outlook that New Delhi would gain leverage to further decrease the money paid to Russia for oil. [caption id=“attachment_11768801” align=“alignnone” width=“640”] Russia shipped over 50 per cent of seaborne Urals oil to India in November. AP.[/caption] India, the world’s third-largest crude importer after China and the US, has been snapping Russian oil that was available at a discount after some in the West shunned it as a means of punishing Moscow for its invasion of Ukraine. Experts estimate that India’s purchases from Russia may have saved over Rs 35,000 crore since February, as per Moneycontrol. From a market share of just 0.2 per cent in India’s import basket before the start of the Russia-Ukraine conflict, Russia’s share of India’s imports rose to 4.24 million tonnes, or nearly 1 million barrels per day, in October, taking a 21 per cent share comparable to that of Iraq and higher than Saudi Arabia’s share of around 15 per cent. Indian officials have insisted New Delhi will continue to buy crude oil from anywhere in the world including Russia to meet its energy needs. “Unlike Iran and Venezuela, there are no sanctions on buying oil from Russia. So anyone who can arrange for shipping, insurance and financing outside of the EU can buy oil,” the official said. In November, Union Minister of Petroleum and Natural Gas Hardeep Singh Puri stated that India had no ‘moral conflict’ in purchasing Russian oil and that the national interest was supreme. Speaking to CNN, Puri said the government has a moral duty to consumers and they have to ensure that consumers are supplied with energy. How will it affect Russia? While the price set is fairly close to Russian oil, the level is far beneath the windfall price Russia was able to get this year – money that helped ease the burden of financial sanctions by the West. Though Russia has expressed optimism about finding new buyers, this might not be so easy. The cap has been implemented in concert with an EU embargo on seaborne deliveries of Russian crude oil – aimed at ensuring that Moscow cannot sidestep the issue by selling oil to third countries at higher prices.

Even the Russian finance minister is admitting it may widen the deficit.

Finance minister Anton Siluanov said Russia’s budget deficit could exceed two per cent GDP planned for 2023 as a result of the oil cap. [caption id=“attachment_11888401” align=“alignnone” width=“640”] Russia’s finance minister Anton Siluanov says its deficit may widen in 2023. Reuters[/caption] “Is a bigger budget deficit possible? It is possible, if revenues are lower than planned. What are the risks next year? Price risks and restrictions,” Siluanov was quoted as saying. “(The price ceiling) is significant to the extent that to those countries that have set the ceiling, there will be no supplies,” the minister said. “This means there will be other countries. Yes, logistics (costs) will increase. Discounts may change as a result.” Who said what? The US hailed the move. “The price cap will encourage the flow of discounted Russian oil onto global markets and is designed to help protect consumers and businesses from global supply disruptions,” US treasury secretary Janet Yellen said on Friday. Meanwhile, Estonian Prime Minister Kaja Kallas was quoted by Outlook as saying that  “crippling Russia’s energy revenues is at the core of stopping Russia’s war machine.”

He claimed the cap would leave Russia’s coffers with $2 billion less.

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Oil prices initially jumped on the announcement and analysts pointed to expectations for stronger demand due to reopening actions by China after lengthy Covid-19 restrictions. But most of the gains in oil prices had evaporated by the end of the trading session. Analysts have noted that Moscow’s move will not impede deliveries to India, China and other importers that did not join the price cap. The Russian action “should not come too much as a surprise for the market really, given what we heard from them over the recent months,” said Matt Smith of Kpler. “It’ll tighten things up a bit, but not too much.” With inputs from agencies Read all the  Latest News ,  Trending News ,  Cricket News ,  Bollywood News ,  India News  and  Entertainment News  here. Follow us on  Facebook,  Twitter and  Instagram.