By Daniel DePetris
Before 2022 came to a close, Russian President Vladimir Putin signed a decree that effectively barred the export of oil and petroleum products to countries and companies that cooperate with the G7's price cap on Russian crude. The price cap scheme, enacted after months of internal debate between the United States, the European Union and partner nations, aims to accomplish two objectives at once: reduce the Kremlin's revenues, thereby complicating its financing of the war in Ukraine, and keep adequate supply on the market to ensure prices remain steady for the consumer.
Buyers wishing to use Western tanker insurance to transport Russian oil will have to attest that the cargo is priced at or below the $60 a barrel limit. Coming on top of the EU's Dec. 5 ban on the purchase of Russian sea-born oil, the cap will (in theory) complicate Moscow's ability to transport its crude to buyers around the world.
The Russians are unsurprisingly angry at the intrusion in what is their most valuable money-making enterprise. Putin himself has lambasted the price cap scheme as "stupid," while Alexander Novak, the deputy prime minister, stated that Russia could respond by cutting oil production by up to 700,000 barrels a day. Such an action would tighten supply, and it's highly unlikely the U.S. would be able to rely on oil producers in the Gulf to offset the shortfall.
This piece was originally published in Newsweek on January 6, 2022. Read more HERE.