Russia has several options to respond to the price ceilings decision, one of which is reducing its oil production, which may turn the tables on everyone, and cause oil prices to rise dramatically, but this response will be painful for the Russian economy at the same time, according to experts who described this step as a retaliatory response.
The maximum price of a barrel of Russian crude, agreed upon by the G7 countries, Australia and the European Union, is $60, in a move aimed at “reducing Russia’s revenues, impeding its ability to finance its war in Ukraine, and depriving President Vladimir Putin of revenue while preserving the flow of Russian oil to global markets.” According to the group of seven.
Market destabilization
While Ukrainian President Volodymyr Zelensky considered that setting the maximum price for Russian oil at $60 is not a serious decision and will not contribute much to deter Russia from its war in Ukraine, Russian Deputy Prime Minister Alexander Novak said, “Russia will not export oil that is subject to a price ceiling.” imposed by the West even if it is forced to reduce its crude production, and we are working on mechanisms to prohibit the use of a price ceiling, regardless of the specified level, because such interference could further destabilize the market.
Review the maximum price every two months
The price ceiling will prohibit G7 companies from dealing with insurance, reinsurance, financing oil trade, or dealing with shipments of Russian crude oil to third countries unless the oil is sold at $60 a barrel or less, provided that the price ceiling is reviewed every two months starting with From mid-January to keep it below the market price by at least five percent.
bleak picture
International energy expert Amer Al-Shobaki said in statements to “Sky News Arabia Economy”: “The picture is bleak and unclear so far, and the state of uncertainty afflicts the supply of Russian oil in general, as well as the quantities of oil required in global markets from the Chinese market in particular, in light of The economic slowdown as a result of the (zero-Covid) policy, and therefore Russia’s reaction and the market’s response to price ceilings will determine the supply of Russian oil.
Even the (OPEC +) group, when it extended the current oil production policy without change, chose to wait until the impact of this decision on the markets becomes clear, as for the first time in history price ceilings are imposed on selling oil, and therefore it is difficult to predict its repercussions, according to Al-Shobaki.
revenge options
Al-Shobaki explains, “There are options in Russia’s hands that may turn the tables on everyone, and they are retaliatory options, and some of them will be very painful for the Russian economy, such as limiting its oil exports or cutting off part of its exports by 2.5 million barrels, which will jump oil prices to more than $150 a barrel.” This step will have great effects on the West, politically and economically, as it will deepen the recession in the European economy, and will also affect the US economy and the popularity of President Joe Biden.
The option closest to the application
But the option closest to implementation on the Russian side, Shobaki continues, is to stop gas supplies completely to Europe, as the Russian budget can absorb the lack of revenues that come from this gas, unlike oil, as Russian gas is still flowing to the European continent and represents 7.5 percent of Europe’s need. The total amount of gas, and this percentage is necessary for Europe to pass through the current winter season, while stopping Russian gas will cause a rise in gas prices, in addition to the risks of gas shortages and power and heating cuts for the European continent.
Al-Shobaki added, “One of the options that Russia has is that it may continue to sell oil even outside the shadow fleet that Russia has secured for itself to export its oil, even if it uses some Western companies under this scope and within what is permitted and will not expose Western companies to sanctions.”
The price ceiling gave an official license to deal with Russian oil
International energy expert Amer Al-Shobaki points out that “the price ceiling gave an official license to deal with Russian oil, after oil and shipping companies and major traders were afraid to deal with Russian oil because they did not fall under any US sanctions in one way or another, which prompted Russia to offer its oil at a rate of Reductions, and this license reflects a real desire on the part of the US and the Group of Seven to increase Russia’s supplies in the markets, but according to the imposed ceiling.
Al-Shobaki concludes: “In general, it can be said that the imposed ceiling falls within the financial tie of the Russian treasury and within the cuts that Russia already offers to countries such as India and China, and therefore these countries will be more likely to buy Russian oil, although it is not expected that such countries will announce their approval of the ceilings.” price, because as a result, it buys oil at prices close to the ceiling, or perhaps even lower.
It is noteworthy that the entry into force of the decision to impose a cap on the price of a barrel of Russian crude oil transported by sea today, Monday, coincides with the ban imposed by the European Union on imports of Russian crude.
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