Oil price ceiling hits Russia hard; Moscow voluntarily cuts production for special reasons

Russia's Western-imposed oil price cap is severely cutting into the country's biggest source of income at a crucial time of its military campaign in Ukraine.

Crude oil samples at the Yarakta oil field, Irkutsk region, Russia. (Source: Reuters)

The above information was given by US Deputy Secretary of the Treasury Wally Adeyemo in a speech on June 15.

Last year, when the Group of Seven (G7), the European Union (EU) and Australia announced an ambitious plan to curb Russian oil prices, US officials said it would deal a heavy blow to the Russian economy, the official said.

The group imposed a price ceiling of $60 a barrel on Russian crude starting December 5, 2022, aimed at limiting Moscow’s ability to finance its military campaign in Ukraine. Western insurance and shipping companies are also banned from providing services on Russian oil and oil products unless they are purchased at or below the price ceiling.

“In just six months, the price cap has contributed to a significant reduction in Russian revenues at a critical time of the special military operation in Ukraine. Russia’s oil revenues have fallen by almost 50% compared to a year ago,” said Wally Adeyemo.

In addition to the price cap, the allied countries have hit the Russian economy with thousands of sanctions during the nearly 16-month military campaign. The sanctions target banking and financial transactions, technology imports, manufacturing and Russians with ties to the government.

In response, Russian President Vladimir Putin issued a decree banning the supply of crude oil and oil products for five months, starting February 1, to countries that apply price caps.

In addition, to improve the financial situation, Russian authorities are considering adopting a draft law to impose a profit tax on large Russian companies. The tax will target companies with annual profits of more than 1 billion rubles ($11.9 million) starting in 2021.

The US Deputy Treasury Secretary said the plan is proof of the success of the oil price cap.

“The oil price cap will constrain Russian oil companies in the future, leaving them with less money to invest in exploration and production. This will in turn reduce the production capacity of the Russian oil industry,” he said.

Lauri Myllyvirta, an analyst at the Finland-based Center for Research on Energy and Clean Air (CREA), said that while the price ceiling has affected the Russian economy, the EU's oil import ban has also "hit" the country's oil revenue.

Last year, the EU announced a ban on imports of Russian oil and other products from Russian refineries. And in February, Europe followed up with a ban on diesel fuel from Moscow.

Still, Mr Myllyvirta finds the ceiling is too high and the EU ban is working better.

In response to the sanctions, Russia has cut oil production and announced this month that it would extend cuts by another 500,000 barrels per day until the end of December 2024.

"This is a precautionary measure, carried out in coordination with the countries of the Organization of the Petroleum Exporting Countries (OPEC) and its partners (OPEC+)," Russian Deputy Prime Minister Alexander Novak wrote on the government's website.

But experts say the voluntary cuts could also be partly due to weakening demand.

According to the International Energy Agency (IEA), global oil demand growth will almost stop in the coming years and peak this decade.

The transition to a cleaner energy economy is accelerating, with global oil demand set to peak this decade thanks to electric vehicles, fuel efficiency and other technological developments, the IEA said.

The agency forecast: "Oil demand growth is expected to slow from 2.4 million barrels per day this year to 400,000 barrels per day in 2028."

Source: https://baoquocte.vn/my-muc-tran-gia-dau-danh-manh-vao-tui-tien-nuoc-nga-moscow-tu-nguyen-cat-giam-san-luong-vi-ly-do-dac-biet-231158.html