Russia prepares to strike back on Western oil price cap

Russia does not want to supply oil and oil products to countries that implement the price ceiling concept. Deputy Prime Minister Alexander Novak says Russia is looking into ways to circumvent the cap.

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

Russia will not provide oil to countries with a price ceiling on Russian energy. In an interview with Rossiya-24, Deputy Prime Minister Alexander Novak stated on December 4 that the notion of capping prices is opposed to market relations.

The Deputy Prime Minister stated that the Russian government is examining ways to circumvent oil deliveries to nations that have agreed to the price cap. Novak referred to the restrictive mechanism imposed on the price of Russian oil as “non-market, inefficient, interfering with market tools, and opposed to all WTO (World Trade Organization) norms.”

“We are working on mechanisms to prohibit the use of the price cap tool (fixed price – ceiling), regardless of what level will be set,” Novak said.

In addition, he mentioned that President of the Russian Federation Vladimir Putin had already addressed our unwavering stance on this topic. At the same time, he reaffirmed that Russia continues to be a trustworthy provider of energy to the global market and a dependable partner.

The European Union, the “Big Seven” nations, and Australia have decided to impose a price ceiling on Russian oil. Its value is set at $60 per barrel, i.e. almost 30% below the current price of a barrel of Brent oil, or $85. 

Alexander Novak, Russia’s Deputy Prime Minister, has previously indicated that Russia does not want to supply oil and oil products to nations that would implement the price ceiling concept with the subsequent reorientation of supplies to market-oriented nations or with a reduction in production.

Russia obtains 40% of its export profits from the sale of oil; thus, any voluntary cut in oil shipments will be quite painful. But, this is the approach and will momentarily substantially increase oil prices. This will wreak havoc on the West, provide Russia with more opportunity to negotiate with purchasers and keep the wells secure. 

In November, the average price of the Russian export blend petroleum brand Urals was $66.47 per barrel, 5.9% less than in October and 1.19 times cheaper than in November 2021 ($79.68 per barrel). In January-November, the price of the primary Russian export commodity was $78.32 per barrel, as per the information supplied on the website of the Ministry of Finance.

Additionally, the agency provided statistics for eleven months. According to the Ministry of Finance, the average price of Urals oil between January and November was $78.32 per barrel. In contrast, it was $68.66 per barrel during the same period last year.

Shipping, freight, customs, and insurance fees are not included in the marginal price and must be billed separately at commercially fair rates, as per the US treasury. Therefore, the price of Russian oil in a Russian port is FOB (free-on-board).

Since October of this year, the Argus pricing agency has been establishing FOB prices for Russian Urals oil, but the European Union aims to monitor the price with the assistance of the International Energy Agency (IEA), in which the United States is the primary player. These prices are not disclosed officially.

OPEC+ may further reduce production

As announced by the OPEC press service on December 4, the OPEC plus nations have resolved not to alter the oil production schedule for October.

If this plan is implemented, it will be reviewed at the June 4 meeting of OPEC + the following year. However, extraordinary meetings may be called “at any time” to take action based on the market condition.

As previously reported by Frontier India, at the next meeting of OPEC + in October, it was decided to cut oil production by 2 million b/d beginning in November.

Although the US has accused Saudi Arabia of toeing the Russian line, according to the energy newspaper Energy Intelligence, oil production losses during the epidemic totalled just 300,000 b/d.

In light of the implementation of a ceiling on the price of Russian tanker oil, it was stated that OPEC+ could reduce the output of black gold even further.

OPEC + held an extraordinary meeting on December 4 to consider further limiting oil production volumes in light of the imposition of a price ceiling for Russian oil transported by tankers.

Commenting on the unprecedented discussions, Novak said they agreed to meet on February 1. Next June, a ministerial meeting will be conducted.

According to Novak, this does not mean there will be no further conversations; cartel members can always discuss urgent matters, but today this was unnecessary.

“We reaffirmed the decisions that were made two months ago,” said Novak.

OPEC+, which has claimed the right to manage the level of supply and preserve oil market stability, is built on an alliance of two main players – Russia and Saudi Arabia.


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