“The supply of Russian oil and Russian oil products to foreign legal entities and other private individuals is prohibited” if they apply the price cap, the decree said, first reported by the AFP news agency.
The decree applies to oil from February 1st to July 1st. The ban can be lifted in individual cases, which Russia’s President Putin decides on. For oil products such as gasoline and diesel, the Russian government should set the exact date, although it cannot be earlier than February 1, the decree says.
Price cap for Russian crude oil
The western countries had agreed on a price cap of 60 dollars (56.52 euros) for Russian crude oil, which has been in effect since early December. The EU, G-7 countries, Australia and Norway want to reduce Moscow’s lavish income from oil sales. At the same time, it should be ensured that Moscow continues to supply the world market. The US government welcomed the measure and spoke of “good news”.
The price cap was introduced in addition to an EU embargo on Russian crude oil transported by ship. It is intended to prevent Russia from circumventing the sanctions and selling the raw material to other countries at the prevailing market price. Moscow had made it clear before the decision that it rejected the price cap. The Russian leadership speaks of a violation of the free market and has been announcing countermeasures for weeks. The ban that has now been announced was therefore already expected.
Up until the spring, Austria was hardly getting any oil from Russia – unlike Germany, for example, which gets more than a third of its oil imports from Russia. According to data from Statistics Austria and the Association of the Mineral Oil Industry, only 7.8 percent or 596,000 tons of Austrian oil imports came from Russia in 2021.
Russia is looking towards Asia
According to experts, it is still unclear whether the price cap will really work. The rationale behind this is to exploit the dominant market position of Western shipping companies and insurance companies in order to prevent Russia from selling its oil on the world market on its own terms. The price cap is to be adjusted every two months and is on average around five percent below the average price for Russian crude oil.
However, there have recently been media reports that Russia has bought up many old oil tankers in order to ship the raw material with its own funds. In addition, Moscow has been engaged in lively diplomatic activity in recent weeks in order to secure international backing on the issue. Putin raised the issue in negotiations both with other oil producers such as Saudi Arabia and with potential buyers such as China and India. Moscow made it clear that it would reorient itself to the Asian market in order to circumvent the restrictions.
In order to put pressure on the markets, Russian Energy Minister Alexander Novak also announced this week that Russia is ready to cut its oil production by five to seven percent at the beginning of next year. That would be a production drop of 500,000 to 700,000 barrels per day. The move is apparently designed to stoke fears of an oil deficit to drive up the price. In addition, potential customers should be deterred in this way from sticking to the price cap.
