President Vladimir Putin delivered Russia’s long-awaited response to a Western price ceiling on Tuesday, signing an order banning the sale of crude oil and oil products to countries subject to the quota beginning 1 February for a five-month term. In reaction to Moscow’s “special military operation” in Ukraine, the Group of Seven major nations, the European Union, and Australia agreed to a $60 per barrel price cap on Russian seaborne crude oil beginning on December 5.
The Kremlin’s decree stated: “This…comes into force on Feb. 1, 2023, and applies until July 1, 2023.”
Crude oil exports will be forbidden beginning February 1; however, the Russian government will decide when oil products would be barred, which might be after February 1. According to a provision in the order, Putin may choose to override the prohibition in specific instances.
Greater Deficit
The price cap, unprecedented even during the Cold War between the West and the Soviet Union, is intended to cripple Russian state coffers as well as Moscow’s military activities in Ukraine.
However, Finance Minister Anton Siluanov stated on Tuesday that Russia’s budget deficit in 2023 could be higher than the targeted 2% of GDP due to the oil price cap restricting export income, creating an additional fiscal challenge for Moscow as it spends lavishly on its military campaign in Ukraine.
According to some analysts, the price cap will have a minimal immediate impact on Moscow’s present oil profits. Russia has been promising a formal response for weeks, and the final decree mainly confirmed what authorities had already declared publicly.
The G7 price cap permits non-EU countries to continue importing Russian crude oil by sea, but it prohibits shipping, insurance, and reinsurance companies from transporting Russian crude cargo around the world unless it is sold for less than the price cap.
Separately, EU countries have imposed an embargo that prevents them from obtaining Russian oil by sea. On Tuesday, Russian Urals oil traded above $56 per barrel, just above the price cap. Brent crude oil rose somewhat on the news, rising 1.4% to $85.1 by 1743 GMT.