KYIV: Russia announced on Tuesday (Dec 27) it would ban oil sales to countries that abide by a price cap imposed this month by the West, giving its long-awaited response to the most dramatic step taken so far to limit Moscow’s ability to raise funds for its war in Ukraine.
Under the price cap, which took effect on Dec 5, oil traders must promise not to pay above US$60 per barrel for Russian seaborne oil to retain access to Western financing for such crucial aspects of global shipping as insurance.
The cap has been set close to the current price for Russian oil, but far below the prices at which Russia was able to sell it for much of the past year, when windfall energy profits helped Moscow offset the impact of financial sanctions.
Russia is the world’s second largest oil exporter after Saudi Arabia, and any actual disruption to its sales would have far-reaching consequences for global energy supplies.
A decree from President Vladimir Putin, published on a government portal and the Kremlin website, was presented as a direct response to “actions that are unfriendly and contradictory to international law by the United States and foreign states and international organisations joining them”.
The Kremlin ban would halt crude oil sales to countries participating in the price cap from Feb 1-Jul 1, 2023. A separate ban on refined oil products such as gasoline and diesel would take effect on a date to be set by the government. Putin would have authority to overrule the measures in special cases.
The West’s price cap, unseen even in the times of the Cold War between the West and the Soviet Union, is aimed at crippling Russian state coffers and Moscow’s military efforts in Ukraine – without upsetting markets by actually blocking Russian supply.
According to Finance Minister Anton Siluanov , Russia’s budget deficit could be wider than the planned 2 per cent of GDP in 2023 as the oil price cap squeezes Russia’s export income – an extra fiscal hurdle for Moscow as it spends heavily on its military campaign in Ukraine.
Some analysts have said that the cap will have little immediate impact on the oil revenues that Moscow is earning, as the price for Russian oil has already fallen close to it. But it could limit Moscow’s ability to profit from future price shocks.
Russian forces shelled and bombed towns and cities in eastern and southern Ukraine again on Tuesday. After a number of dramatic Ukrainian gains in the autumn, the war has entered a slow, grinding phase as bitter winter weather has set in at the front.
The heaviest fighting has been around the eastern city of Bakhmut, which Russia has been trying for months to storm at huge cost in lives, and further north in the cities of Svatove and Kreminna, where Ukraine is trying to break Russian defensive lines.