Oil price cap: Russia threatens to cut production by up to 7% for 2023

Only a few days after the introduction of the Russian oil price cap, President Vladimir Putin had threatened the West with “reduce production” Russian oil ” if necessary “denouncing a “stupid decision”. It is now done. This Friday, December 23, Moscow announced that the country could reduce its production in early 2023. “At the beginning of next year, we could make a reduction (in production) of 500-700,000 barrels per day, for us it’s around 5-7%”said Alexander Novak, Russian Deputy Prime Minister in charge of Energy, quoted by the official news agency TASS.

This reduction in production would then come in response to the introduction by the European Union, the G7 and Australia of a cap on the price of Russian black gold recorded on December 5th. Since the announcement of Westerners decided to stop the “special operation” led by Moscow in Ukraine, only Russian oil sold at a price equal to or less than 60 dollars a barrel can continue to be delivered by sea, in order to limit Russia’s income to finance its military offensive. Thus, beyond this price, it will be prohibited for companies based in the EU, G7 countries and Australia to provide the services allowing maritime transport (freight, insurance, etc.). However, the G7 countries provide insurance services for 90% of global cargo and the EU is a major player in maritime freight.

An anti-capping mechanism designed by Moscow

Despite this cap on the price of oil and the potential reduction in its production, Moscow assures that the cap will not slow down its industrial momentum. The Kremlin even intends to take advantage of this ban in order to establish new commercial links. “I have no doubt that there will be buyers for our products” oil tankers, Russian Deputy Foreign Minister Sergey Ryabkov said two weeks ago. He also felt that this cap will “fragment” the world economy ” in many areas “.

European embargo on Russian oil: the big leap into the unknown of the oil market

Indeed, Moscow has devised a mechanism to prohibit oil sales to states and companies that would apply the cap. “We are in the process of making our decision”said Alexander Novak, according to RIA. To Asked if the mechanism would enter into force by the end of the year, he replied: ” Yes, I’m sure “. But for the moment, there is no sign that this system is already implemented.

The price of gas is also capped

In addition to the Russian oil price cap, the EU27 also agreed on a gas price cap on Monday 19 December. This consists of a mechanism to cap wholesale gas prices as soon as they exceed 180 euros per megawatt hour (MWh) for three consecutive days.

The EU overcomes its divisions and agrees on a gas price cap

Thus, the States have agreed to activate the cap only if the difference between the price of the TTF and the world price of liquefied natural gas (LNG) is equal to or greater than 35 euros. The mechanism can also be deactivated at the request of the European Commission in the event of an emergency. Other provisions provide for its automatic suspension, in particular if gas demand increases by 15% in one month or 10% in two months, if LNG imports decrease significantly, or if the volume traded on the TTF decreases. significantly compared to the same period of the previous year.

Russia, on the other hand, consider this measure “unacceptable”. “It is a violation of the market process for price formation”Kremlin spokesman Dmitry Peskov said on Tuesday, December 20, as quoted by Russian news agencies. “Any reference to a ‘cap’ (on prices) is unacceptable”, he insisted.

(With AFP)