Sunday, June 23, 2024

Russia bans sale of oil to G7, EU nations backing the price cap

Russian president Vladimir Putin has signed a decree banning sales of oil to countries and companies backing the G7 and European Union’s newly imposed price cap on Russian seaborne oil. 

This executive order by Russia came in response to the “unfriendly actions” of the United States and other foreign states and International organisations that backed the price cap.

According to the Presidential decree, “The supply of the Russian oil and oil products to foreign legal entities and Individuals is prohibited if the contracts for such supplies directly or indirectly use the oil price cap.” The decree said that it have been issued to protect the national interests of the Russian Federation and in accordance with the federal laws on special economic measures and coercive measures, federal laws on security and federal laws on ‘measures to influence (counter) unfriendly actions against the United States of America and other foreign countries’.

The decree says that the supply of Russian oil and oil products to foreign legal entities and individuals persons is prohibited if such entities and individuals expressly and indirectly support the price cap. The prohibition applies at all stages of supply to the final buyer.

Effective from February 1 to July 1, the executive order mentions that the ban may be lifted in individual cases on the basis of President Putin’s  ‘special decision’. 

An interdepartmental working group has been tasked with ensuring compliance with the executive order. This group works on issues pertaining to Russia’s fuel and energy activities.

The Russian government will determine the list of codes of goods according to the unified Commodity Nomenclature for Foreign Economic Activity of the Eurasian Economic Union, for which the provisions of the Decree apply, and will adopt acts aimed at implementing the prohibition established by the Decree. The Ministry of Energy of the Russian Federation has been directed to monitor the implementation of the Decree on a regular basis.

This comes after the Group of Seven (G7) and European Union (EU) on December 3 agreed upon imposing a price cap of $60 per barrel on Russian seaborne oil in response to Russia’s offensive in Ukraine.  As per the regulations of the EU and G7 imposed price cap, G7, and EU-based insurance and reinsurance companies that provide services for tankers carrying Russian crude oil, as well as institutions financing Russian crude transactions, will not be allowed to handle such cargoes unless the oil is bought at or below the price cap. Shipping companies will not be allowed to provide tankers for the transport of Russian crude as well unless the oil is sold at or below the $60 price cap. 

Aimed at “reducing Russian revenues” and yet “ensuring the supply of Russian crude to the global market”, this price cap came to effect on December 5. 

Notably, it was reported earlier that Russia has rejected the West’s price and Moscow might soon ban oil exports to countries backing the price cap in retaliation. 

The Russian President has earlier said that the “ill-conceived, and miscalculated oil price cap will not have an impact on Russia and its war against Ukraine. However, he asserted that the West’s move will have a drastic effect on the global energy markets. 

It is pertinent to note that Russia is the world’s second-largest oil exporter after Saudi Arabia. In order to avert the sanctions imposed by the West, Russia has been selling its seaborne oil to countries like China and India at a 40-50 percent discounted rate. Besides, Russia is also confident of finding new buyers even after the West’s price cap. 

This decision will not impact India as the Indian government has refused to accept the price cap on Russian oil imposed by G7. Hardeep Singh Puri, India’s Union Minister for Petroleum and Natural Gas, said that the oil price cap will not have an impact on India. Russia has welcomed this decision by India. “The Deputy Prime Minister welcomed India’s decision not to support the price cap on Russian oil, which was imposed on 5 December by the G7 countries and their allies,” the Russian Foreign Ministry said in a statement earlier this month.

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