Russian President Vladimir Putin signed a decree on Tuesday banning oil supplies to countries that have introduced price caps on Russian oil and petroleum products, according to the decree published on the Kremlin’s website – a move that may prove to be largely symbolic.
Earlier this month, Western countries implemented a price cap on Russian crude oil at $60 a barrel, a policy aimed at Moscow’s remaining oil customers. It’s enforced by the companies that provide shipping, insurance and other services for Russian oil. Europe also banned the import of Russian crude by sea.
The United States, Canada, the European Union, Japan, the United Kingdom and Australia all agreed to the price cap. The United States and Canada banned the import of Russia’s oil and the European Union this month banned imports by sea.
Given those countries’ widespread bans, the Kremlin’s new policy may not pack much punch. The oil market was largely unfazed by Russia’s decree, with the benchmark Brent oil price rising less than 2% Tuesday. US oil topped $80 a barrel while Brent traded at around $86.
“Supplies of Russian oil and oil products to foreign legal entities and individuals are prohibited, provided that the contracts for these supplies directly or indirectly provide for the use of a price fixing mechanism,” Putin said in his decree. “The established ban applies at all stages of supplies to the final buyer.”
The ban on oil supplies under the price ceiling will go into effect February 1 and is valid until July 1, 2023. The date of the ban on the supply of petroleum products will be determined by the Russian government, according to the decree.
The West’s price cap is designed to limit the Kremlin’s revenues while allowing countries such as China and India to continue to buy Russian oil, provided they don’t pay more than $60 a barrel. It’s designed to be enforced by companies that provide shipping, insurance and other services for Russian oil.
The head of state – i.e. Putin – also can issue a special permit for the supply of Russian oil and oil products prohibited by the document.
Market analysts have been expecting a response from Moscow, which has vowed not to cooperate with the price cap. Many feared Russia would slash its production, rattling global energy markets.