Putin Prohibits Compliance With G7 Price Cap

President Vladimir Putin signed a decree on Tuesday prohibiting sales of Russian crude oil and refined petroleum products to foreign citizens or companies that adhere to the G7 price cap mechanism.

Russia had repeatedly stated that it would issue such a ban in response to the G7 price cap on exports of Russian crude oil that took effect on Dec. 5 and a similar G7 price cap on exports of refined products that will take effect on Feb. 5.

The EU, the US, the UK and other allied countries have banned imports of Russian crude oil and the provision of shipping and insurance services for vessels carrying Russian oil to other countries.

But the price cap does allow western shipping and insurance services to be provided for exports of Russian crude oil to other countries as long as the crude is sold in accordance with the price cap, which has been set at an initial level of $60 per barrel.

Russia's ban on crude sales that comply with the price cap will take effect from Feb. 1 for an initial period of five months.

The presidential decree requires the government to take the necessary legislative steps to put the ban in place and develop mechanisms to monitor and enforce it.

The decree does allow Putin to make exemptions.

Cap Reinforces Russia's Voluntary Discounts

The G7 price cap essentially reinforces the big voluntary discounts that Russia started to offer willing buyers of its crude oil shortly after some of its European customers began to shun Russian oil following Moscow's invasion of Ukraine in February.

India in particular has emerged as a big buyer of Russian crude, having imported minimal volumes before the war in Ukraine.

China was already a big importer of Russian crude but has increased its purchases significantly this year to take advantage of low prices. Turkey has also stepped up its imports from Russia this year.

Russia hopes to be able to redirect lost sales to these and other countries where buyers negotiate prices with Russian sellers rather than accepting the G7 price cap.

In practice it will probably make little difference whether a buyer accepts the cap or negotiates a discount. Reuters reported that Russia's Urals crude was trading at around $56 per barrel in Europe on Tuesday — below the $60 cap.

Deputy Prime Minister Alexander Novak said last week that Russia would be willing to cut its oil production, if it were to face insufficient demand for its crude at the beginning of the new year.

He said Moscow hoped to avoid such a scenario by placing more of its oil with "friendly" countries, but he acknowledged that a temporary cut of 500,000-700,000 barrels per day might be necessary.

Energy Intelligence assessed Russia's November production of crude oil and other liquids at 11.4 million b/d, with crude alone amounting to 9.8 million b/d.

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