Russia, the world’s second largest oil exporter, will not sell oil that is subject to a Western price cap even if it has to cut production, President Vladimir Putin’s point man on energy said.
The Group of Seven and Australia on Friday agreed a $60 per barrel price cap on Russian seaborne crude oil after European Union members overcame resistance from Poland.
The move by the West to prohibit shipping, insurance and re-insurance companies from handling cargoes of Russian crude above the cap, is an attempt to punish Putin for the Ukraine conflict.
Russian Deputy Prime Minister Alexander Novak said on Sunday the move by the West was a gross interference which contradicted the rules of free trade and would destabilise global energy markets by triggering a shortage of supply.
“We are working on mechanisms to prohibit the use of a price cap instrument, regardless of what level is set, because such interference could further destabilise the market,” said Novak, who is the Russian government official in charge of the country’s oil, gas, atomic energy and coal.
“We will sell oil and petroleum products only to those countries that will work with us under market conditions, even if we have to reduce production a little,” he added.
Novak said the Western cap could trigger trouble in the products markets and could affect other countries beside Russia.
It is unclear what, if any, immediate impact the Western cap will have on Russian oil flows because the discounted price to Brent for Russian blends has widened so significantly.
Urals blend was trading at around $61.3 per barrel – just over one dollar above the cap level. Brent crude futures closed at $85.57 per barrel on Friday.
Selling oil and gas to Europe has been one of the main sources for Russian foreign currency earnings since Soviet geologists found oil and gas in the swamps of Siberia in the decades after World War Two.
A source who asked not to be identified due to the sensitivity of the situation told Reuters that a decree was being prepared to prohibit Russian companies and traders from interacting with countries and companies guided by the cap.
In essence, such a decree would ban the export of oil and petroleum products to countries and companies that apply it.
Since he ordered the February 24 military operation in Ukraine, Putin says the United States and its allies have embarked on economic war against Russia with the most severe sanctions in modern history, warning that they will face a energy crisis.
Putin in September warned the West that he could cut off energy supplies if price caps were imposed, telling them that Europe would be “frozen” like a wolf’s tail in a well-known Russian fairy tale.
Russia can access enough tankers to ship most of its oil beyond the reach of a new G7 price cap, industry players and a U.S. official told Reuters in October, underscoring the limits of the most ambitious plan yet to curb Moscow’s wartime revenue.