The European Union (EU) and its G7 allies have implemented a series of economic sanctions against Russia in response to the country’s invasion of Ukraine nearly a year ago. This includes a ban on imports of seaborne Russian oil and oil products, price caps on global trade of Russian oil, and restrictions on the purchase, import or transfer of seaborne Russian crude oil and petroleum products.
The price cap is instituted to guarantee that Russian diesel and other petroleum products can still be exported to other countries, thus avoiding any dramatic rise in prices due to the EU embargo.[0] European insurance and shipping companies will be allowed to keep providing services to shippers taking Russian oil products to other areas, so long as the fuel is obtained at or lower than a predetermined maximum amount.[1] The G7 countries have set two price caps for Russian petroleum products — one is a US$100-per-barrel cap on products that trade at a premium to crude, like diesel, and the other is a US$45 cap for petroleum products that trade at a discount to crude.
Russia has responded to the sanctions by announcing plans to cut its oil production by around 500,000 barrels a day, or about 5%, next month.[2] This sent crude prices higher in a move that Moscow said was in response to Western sanctions.[3] Brent crude climbed as much as 2.6% in London to trade above US$86 a barrel, erasing an earlier decline, while West Texas Intermediate moved above US$80 a barrel.[4]
The Kremlin has also threatened to use its vast production of all sorts of commodities, including oil, to punch back against economic restrictions.[3] Russia has already restricted the amount of oil and natural gas going to Europe since the war in Ukraine started almost a year ago, seemingly in an attempt to pressure Ukraine’s Western allies to reduce their support for the country.[5]
Experts have suggested that Russia could respond to the cap by reducing production in order to increase the price of oil which could result in higher prices at the pump as less oil becomes available on the international market.[6]
Alexander Novak, Deputy Prime Minister of Russia, declared that they will be voluntarily reducing oil production by 500,000 barrels per day.[7] He added that the move is meant to “facilitate the restoration of market relations” and that Russia may take further actions depending on the market situation.[2]
0. “Is the EU ready for life without Russian diesel?” DW (English), 3 Feb. 2023, https://www.dw.com/en/is-the-eu-ready-for-life-without-russian-diesel/a-64600376
1. “EU ban on Russian oil imports comes into force” Euronews, 6 Feb. 2023, https://www.euronews.com/my-europe/2023/02/06/eu-ban-on-russian-oil-imports-comes-into-force-as-west-steps-up-measures-against-moscow
2. “Oil a big winner on the day as Russia says that it would cut production in March” ForexLive, 10 Feb. 2023, https://www.forexlive.com/news/oil-a-big-winner-on-the-day-as-russia-says-that-it-would-cut-production-in-march-20230210
3. “Russia to Cut Oil Production, Sending Prices Higher” The Wall Street Journal, 10 Feb. 2023, https://www.wsj.com/articles/russia-to-cut-oil-production-sending-prices-higher-5697a8e8
4. “Brent Oil Jumps Above $86 After Russia Says It Plans Output Cut” Yahoo News, 10 Feb. 2023, https://news.yahoo.com/brent-oil-jumps-above-85-083312029.html
5. “Russia cuts oil production by 5 percent, prices climb” The Hill, 10 Feb. 2023, https://thehill.com/policy/international/3852490-russia-cuts-oil-production-by-5-percent-prices-climb/
6. “Russia moves to cut oil production over western price caps” Global News, 10 Feb. 2023, https://globalnews.ca/news/9476929/russia-oil-production-cut-price-cap/
7. “Russia announces oil production cut in response to sanctions” POLITICO Europe, 10 Feb. 2023, https://www.politico.eu/article/russia-announces-oil-production-cut-in-response-to-sanctions/