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Kremlin ‘Analyzing’ Price Cap Response

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Moscow is keeping a close eye on the negotiations between EU countries to set the level of the price cap on Russian oil and will analyze the proposed levels before deciding how it will respond.

"We proceed from the guidelines by President [Vladimir] Putin that we will not supply oil and gas to the states that would join the caps," the Kremlin's spokesman Dmitry Peskov was quoted as saying Thursday. "But seeing the figures we certainly have to analyze everything before formulating our position," he added.

Peskov’s comments are the first indication that Russia could adjust its position on the G7 proposal.

Until now the official view seemed to be unshakable. Russian Deputy Prime Minister Alexander Novak repeated earlier this week that Russia would not supply its oil under price cap limitations since this is a violation of market rules.

A proposed range for the cap being discussed by the EU has been reported at $65-$70 per barrel. This is what Russian exporters get now for the Urals crude export blend volumes they sell to global markets.

It is likely no coincidence that Russia has introduced the possibility of moderating its stance just as EU nations struggle to agree on the price levels. Countries dependent on global shipping, including Greece, Cyprus and Malta, have pushed to set the cap at higher levels in order to keep trade in Russian barrels flowing.

The issue of the price cap for Russian oil was also discussed during the telephone conversation between Putin and Iraqi Prime Minister Mohammed Shia al-Sudani Thursday.

According to the Kremlin's website, Putin emphasized that "such actions contradict the principles of market relations and with a high degree of certainty will lead to hard consequences for global energy markets."

Peskov made his statements in response to a question on Moscow's reaction to a price cap that would be at the market price level or even higher.

"All this should be subjected to a deep analysis," he reiterated but noted that "the nuances being discussed by the Europeans at the moment are not clear."

If the EU agrees to a price cap at levels that are acceptable for the Russian exporters, Moscow could face a choice between sticking to its political declarations and economic sense.

A major factor against the latter could be the refusal to play by Western rules that Russian officials have said distort market principles and a belief that agreeing to any such concessions could lead to even tighter demands from the West in future, according to a Russian oil executive.

Russian finance ministry guidelines for budget, tax and tariffs policy envisage the oil price at $70.10/bbl in 2023, which is to go down to $67.50/bbl in 2024.

Peskov called the current price levels for the cap that are under discussion inexplicable.

Describing the debate by 27 EU countries that still failed to come to a unanimous decision on the issue, he said that "there is an impression they try to take decisions for the sake of a decision-taking, just to tick the box that the price cap has been introduced."

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >

Topics:
Ukraine Crisis, Sanctions, Oil Supply
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