Russia’s oil companies have been ordered to comply with a decree banning exports of Russian oil and oil products under price caps imposed by Western nations — but will not face any punishment if they fail to do so.
Russian Prime Minister Mikhail Mishustin signed a resolution that was published this week demanding that oil companies adhere to a decree issued by President Vladimir Putin in December prohibiting export sales of Russian oil and oil products under price cap mechanisms.
The resolution bans producers from striking foreign sales contracts with the price cap clause imposed by Western nations in December as part of their continued response to Russia’s invasion of Ukraine last February.
The Western sanctions introduced in December included a European Union ban on Russian crude imports and a $60 per barrel price cap imposed by the wider G7 group of leading economies on Russian seaborne oil transported to countries outside Europe not participating in the EU’s full embargo.
However, the resolution signed by Mishustin this week merely introduces additional paperwork to export procedures, with no direct instructions to producers to reduce output if they are unable to comply with the ban on price cap sales, as previously demanded by governmental officials.
Under the new resolution, copies of existing and new oil export contracts will be examined by Russian Customs, which will have the right to halt exports of cargoes sold under the Western-imposed price cap mechanism.
Producers will also have to submit a written declaration to customs for each cargo, stating that the price-cap mechanism has not been used.
The new resolution obliges producers to monitor the movement seaborne cargoes from the point of sale to the end-customer, which will involve the companies requesting and reviewing copies of contracts from third parties as the cargoes change hands, to “verify if they contain the price cap clause”.
If producers discover such a clause during the monitoring, they have 30 days to “take measures to eliminate” such violations, and a further five days to report to Russian Customs and the Russian Energy Ministry if they are unable to rectify the issue.
The resolution envisages no fine or other punishment to producers for failing to amend subsequent resale contracts for their oil export cargoes.
However, customs will ban any new export deliveries sold under compromised legacy contracts.
Exports of Russian crude and oil products dropped in December following the introduction of the Western-imposed price cap, but regained ground in January, increasing by estimated 40% against the previous month, according to the monitoring of oil tankers leaving Russian ports.
At least 37 million barrels of Russia’s main crude blend for export — Urals — have been shipped from Russia’s ports of Primorsk, Ust-Luga and Novorossiysk to destinations in Asia in January, according to data from Refinitiv Eikon.
Destinations for another 14 million barrels of Urals blend have not been identified by vessels, but traders expect the final destination for most will be India or China, according to Reuters.
More Russian oil for Asia?
A partner at Moscow-based energy consultancy RusEnergy, Mikhail Krutikhin, said he expects Russian producers to attempt to send even more crude to export destinations after 5 February, when the European embargo and additional price caps on Russian oil products exports come in force.
In 2021, almost 60% of Russian oil products exports were sent to countries that approved the embargo and the price caps, with little increase in demand for Russian oil products in India, China and elsewhere in Asia, he said.
Russian producers will have to either reduce refinery production and eliminate excess by cutting oil production, or attempt to export such excess to international markets at a larger discount than used at present, according to Krutikhin.
Such an arrangement may benefit India, which increased its exports of refined oil products last year, with a major volume being sent to the US, according to the Telegraph of India.
Earlier in January, Mikhail Gutseriyev, the owner of Russian oil producers Russneft and Neftisa, petitioned the government to reduce the oil production tax and extend bankruptcy protection measures for the country’s oil producers to end of 2023, according to Moscow-based news agency Interfax.
Producers may be unable to pay taxes on time this year because of declining export revenues, he warned.
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