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FACTBOX: Export of Russian oil and West’s attempts to introduce price cap on it

Since 2017, China has been the largest buyer of Russian oil

TASS-FACTBOX. On February 1, 2023 Russian President Vladimir Putin’s decree dated December 27, 2022 comes into effect, prohibiting oil supplies under contracts that include a price cap on Russian crude. Western countries introduced this price cap mechanism in late 2022.

TASS prepared a fact box on Russian oil exports and the price cap the Western countries are trying to impose on it.

Russian oil exports

According to the Federal Customs Service, in 2021, Russia exported 229.9 million tons of crude oil worth $110.1 billion. For reference, in 2020, Russia exported 238.6 million tons of oil (3.7% more), but then the value was $72.4 billion (34% less). In 2021, Russia supplied oil to 36 countries, in 2020 - to 39.

Since 2017, China has been the largest buyer of Russian oil. In 2021, China purchased 70.1 million tons of oil from Russia (30.6% of total Russian oil exports) worth $34.9 billion. The Netherlands was the second-largest importer of Russian oil (37.4 million tons for $17.3 billion), Germany ranked third (19.2 million tons for $9.3 billion).

The top 10 of importers of Russian oil in 2021 also includes Belarus (14.9 million tons; $6.4 billion), the republic of Korea (13.5 million tons; $6.4 billion), Poland (11.2 million tons; $5.4 billion), Italy (8.9 million tons; $4.2 billion), USA (7.4 million tons; $3.7 billion), Finland (6.3 million tons; $3 billion) and Slovakia (5.3 million tons; $2.5 billion).

Overall, EU countries accounted for 47% of deliveries in physical terms (108.1 million tons; $50.9 billion). For reference, in 2012 the EU’s share in Russian oil exports was 67%.

In 2021, maritime supplies were the main way Russian oil exports made it to non-CIS countries: 118.5 million tons of oil were delivered through the ports of Novorossiysk (the Krasnodar region), Kozmino (the Primorsky region), Primorsk and Ust-Luga (both in the Leningrad Region), as well as Prigorodnoye (Sakhalin).

Shipments through the Druzhba oil pipeline to Europe amounted to 35.9 million tons, through the East Siberia - Pacific Ocean oil pipeline and transit pipelines through Kazakhstan to China - 40 million tons.

According to OPEC, in 2021, Russia became the second-largest oil exporter in the world after Saudi Arabia. Russia’s share in supplies to the world market was 10.9%.

Price dynamics

Futures contracts for Brent oil is the main reference point for estimating oil prices on the international market, including the Russian one. On their basis, they calculate the cost of the Russian brand Urals, which in past years was sold at $1-2 dollars per barrel cheaper than Brent.

In the early 2000s, a barrel of Brent oil cost an average of $24-28. Oil prices started to grow in 2004, when they reached an average of $38.3 per barrel. The all-time high price for a barrel of Brent ($143.95) was recorded on July 4, 2008.

The beginning of the global financial and economic crisis in 2008 led to a collapse in prices - to $33.73 (December 26), but then prices recovered.

By 2011, the average price of oil exceeded $100 per barrel for the first time and reached $111.26.

In 2012 and 2013, average prices were also high - $111.63 and $108.56 respectively.

In 2014, the demand for oil began to decline. As a result, in 2014 the average prices amounted to $98.97 per barrel, and in 2015 they fell to $52.32. From 2016-2019, oil prices failed to reach $100 per barrel and fluctuated around $45-80.

The coronavirus pandemic led to a sharp drop in industrial production and demand for fuel. In the spring of 2020, prices fell below $10 per barrel. Prices were then stabilized thanks to the OPEC+ deal, with an average price of $41.96 in 2020. In 2021, prices rose to the pre-Covid level of $70.86.

On February 24, 2022, after the start of the special operation of the Russian armed forces in Ukraine, oil prices crossed the $100 per barrel mark for the first time since September 2014 and reached their intermediate peak of $129.2 per barrel on June 8, 2022. By the beginning of 2023, oil prices had stabilized around $75-85 per barrel.

Introduction of price cap for Russian oil

After the start of the special military operation in Ukraine in February 2022, Western countries began to impose sanctions against Russia, in particular with the aim of preventing the export of Russian energy resources.

The US announced a complete embargo on Russian oil. In 2021, the share of Russian oil in US oil imports was 3%, and 9% in UK oil imports. Canada and Australia did not import Russian oil in 2021. However, other countries, as well as the European Union, which received 29% of its oil from Russia in 2021, were not ready for a sharp cessation of supplies. Also, the countries that imposed sanctions were afraid of measures completely banning oil exports from Russia, since they could provoke an uncontrolled increase in prices on the world market.

On April 26, the Financial Times reported, citing its sources, that for the first time, Western countries were considering the possibility of setting an upper limit on the price of oil from Russia. The fact that this idea was discussed at the highest level was first confirmed on May 11 by Italian Prime Minister Mario Draghi following talks with US President Joe Biden. On May 20, US Treasury Secretary Janet Yellen announced that the finance ministers and Central Bank governors of the Group of Seven (G7) countries discussed the creation of a cartel of buyers to control the price of Russian oil.

On June 28, at the G7 summit in Germany, the participating countries agreed to explore options for limiting prices by banning insurance and transport services necessary for the transportation of Russian oil and oil products. It was assumed that such a ban would be applied if the cost of oil exceeded the ceiling "agreed to by international partners." Also in the summer, G7 countries began to negotiate with other states, inviting them to join in on limiting prices for Russian energy resources.

On September 2, following a meeting of G7 finance ministers, it was announced that the G7 participants agreed to introduce a price cap on Russian oil. The statement said that G7 states and those which decide to join the "broad international coalition" undertake not to buy oil from Russia at a price exceeding the established limit and to allow insurance for tankers and financing of carriers only if oil is purchased at a price equal or below the ceiling. The ministers hoped that Moscow would have no choice but to trade on the terms they imposed on it. In the meantime, it became known that, in particular, oil supplies from the Sakhalin-2 project, in which Japanese companies participate, would be removed from the restriction. At that time, the specific parameters of the price cap had not yet been agreed upon.

On October 5, Hungarian Foreign Minister Peter Szijjarto said that the EU planned to extend the price cap for Russian oil to pipeline supplies, but Hungary ensured that oil pipelines were removed from the restrictions (Hungary has repeatedly stated that the cessation of Russian oil imports will undermine its energy security).

On October 6, the EU introduced the eighth package of sanctions against Russia, which included the creation of a legislative framework for setting a price cap for Russian oil, as well as restrictions on the maritime transportation of oil and oil products to third countries.

On December 2, it was announced that the price cap for Russian oil transported by sea was agreed at $60 per barrel. On December 5, this embargo came into force, and as a result, G7 countries, the EU (except for the states that have no alternatives to importing Russian fuel) and Australia joined the measure. The decision provides for the possibility of revising the price cap in the future.

Russia's reaction

On September 1, Deputy Prime Minister Alexander Novak told reporters that Moscow would suspend supplies of oil and petroleum products to states which decided to restrict the price of oil from the country. He emphasized that Russia "will not work non-competitively" and called the proposals to impose restrictions on the price of Russian oil "completely absurd."

On October 12, speaking at the Russian Energy Week forum in Moscow, President Vladimir Putin said that Russia would not supply energy resources to those countries that would limit oil prices. " Russia will not act against common sense, to pay for others’ welfare out of its own pocket," the head of state stressed.

On November 30, Foreign Ministry Spokeswoman Maria Zakharova said that many countries did not support the idea of setting a price cap on Russian energy resources. In particular, officials from China and Brazil, as well as representatives of the OPEC + alliance, publicly condemned the G7’s idea.

On December 26, in an interview with TASS, Alexander Novak said that the Russian authorities had introduced preventive measures to counteract the "price cap." In particular, for the uninterrupted insurance of tankers, the authorities conducted additional capitalization of the Russian National Reinsurance Company, he said.

On December 27, President Vladimir Putin signed a decree on the application of special economic measures in connection with the establishment of a price cap for Russian oil products and oil by a number of countries. The ban on oil supplies at "capped" prices will be in effect from February 1 to July 1, 2023. A separate paragraph of the decree leaves the head of state the right to make special decisions on the supply of oil and oil products, the implementation of which is prohibited by the decree.

On January 30, the Russian government approved the procedure for banning oil exports under the price cap.

By March 1, the Energy Ministry and the Finance Ministry of Russia must approve the procedure for monitoring export prices for Russian oil. At the request of the Energy Ministry, Russian exporting companies will have to provide monthly information on contracts and prices, as well as data on monitoring the non-use of the price fixing mechanism up to the end buyer.