Russia has categorically rejected the price cap on Russian oil decided on by the West on Friday, December 2nd in a bid to reduce Moscow’s revenues and deplete its war chest. Kremlin spokesman Dmitry Peskov confirmed the news to reporters on Saturday, December 3rd.
Various agencies have quoted Peskov as saying that Moscow was prepared for this price cap—a controversial mechanism that would ‘force’ Russia to sell its oil for less than the current market value.
Without going into more detail, Peskov said that the situation is still being assessed. What is certain is that Moscow is not giving an inch. “We will not accept this price cap,” Peskov assured, adding that Russia would soon formulate a response.
The EU, the G7 countries (Canada, France, Germany, Italy, Japan, the UK, and the U.S.), and Australia reached an agreement on Friday, December 2nd, on a price cap for Russian oil transported by sea to Europe.
The price cap is an attempt to bring the Kremlin to sell its oil to countries outside the EU at a maximum price of $60 (€57) per barrel. By comparison, the recent market price for a barrel of Ural oil from Russia was about $65 (€62). The price cap is expected to go into effect on Monday, December 5th.
While the G7 price cap will allow non-EU countries to continue importing seaborne Russian crude oil, it will prohibit shipping and insurance companies (the largest of which are based in G7 countries) from handling Russian crude cargo around the globe unless it is sold for less than €57 per barrel.
Since the majority of Russian oil is transported via tankers rather than pipelines, that could complicate Russia’s efforts to sell its oil for prices above the cap, even to nations not part of the agreement.
Russia has repeatedly said it will not supply oil to countries that apply such a cap. That position was reaffirmed by Moscow’s Vienna-based ambassador to international organizations, Mikhail Ulyanov. On December 2nd, he wrote on his social media that “starting this year, Europe will have to live without Russian oil,” as he prophesied that “very soon, the EU will accuse Russia of using oil as a weapon.”
According to Reuters, Janet Yellen, the U.S. Treasury Secretary, said the cap will mainly benefit low- and middle-income countries, as these are most affected by high energy and food prices. “With the Russian economy already shrinking and the budget getting tighter, the price ceiling will immediately cut into President Vladimir Putin’s main source of income,” Yellen said in a statement.
In a comment published on Telegram, the Russian Embassy in the U.S. criticized what it called a”dangerous” Western move and said Moscow would continue to seek buyers for its oil. “Steps like these will inevitably result in increasing uncertainty and imposing higher costs for raw materials’ consumers,” the embassy said. “Regardless of the current flirtations with the dangerous and illegitimate instrument, we are confident that Russian oil will continue to be in demand.”
Russia, having already largely pivoted to the Asian market in terms of trade as well as finance after being hit by a succession of sanctions from the West, is now even more incentivised to find ways to circumvent that region’s opposing moves.
Apart from the disruption world markets are expected to experience when the measure goes into effect, Russia currently has little urgency to step it up on that front, however.
Since India and possibly China are expected to continue their purchases of Russian oil without the help of Western shipping and insurance services, the sanctions will be largely toothless, as various critics and industry insiders warned even before the deal had been reached.
A later report by OilPrice stated that only last week “both China and India were purchasing crude oil from Russia at a massive $33.28 discount, meaning they were already purchasing well below the price cap. Industry insiders, however, also noted that there “are still a limited number of non-Western ships and insurers that can bring Russian oil to markets.”
Yet, should transport by sea prove difficult, the Chinese market (the world’s #1 oil importer as well as the world’s top importer of Russian oil) can still be reached through the critical ESPO and Atasu-Alashankou oil pipelines.
According to S&P Global, it is however unlikely that Russia, given the limit on the ESPO pipeline’s transmission capacity, is able to increase its supplies to mainland China via that route. The alternative–the Atasu-Alashankou pipeline—has limited spare capacity.
India, which imported a record number of around 950,000 barrels of Russian oil per day in June and is the third biggest importer as well as consumer of oil worldwide, has no direct pipeline connection to Russia.
Meanwhile, OPEC+ (The Organization of the Petroleum Exporting Countries Plus) sources said on December 2nd that it will likely stick to its oil output targets. It, too, deems the price cap to be “confusing” and “probably inefficient” as Moscow still has reliable trading partners in China and India.