Aprice cap deal on Russian seaborne oil came into force on Monday as the West tries to limit the fossil fuel earnings that support Moscow’s budget, its military and the invasion of Ukraine.
Russia shrugged off the move, warning that it would not disrupt its military campaign in Ukraine.
G-7 nations and Australia on Friday agreed to a $60 per barrel price cap on Russian seaborne crude oil after European Union members overcame resistance from Poland. Russia is the world’s second-largest oil exporter.
The move has prompted a rejection from the Kremlin, which says it will not abide by the measure even if it has to cut production, and also criticism from Ukrainian President Volodymyr Zelenskyy – whose government wants the cap to be half as high.
“We are working on mechanisms to prohibit the use of a price cap instrument, regardless of what level is set, because such interference could further destabilize the market,” said Alexander Novak, the Russian government official in charge of its oil, gas, atomic energy and coal.
“We will sell oil and petroleum products only to those countries that will work with us under market conditions, even if we have to reduce production a little,” he said.
Kremlin spokesperson Dmitry Peskov said the cap would destabilize global energy markets but would not affect Russia’s ability to sustain what it calls its “special military operation” in Ukraine.
The agreement allows Russian oil to be shipped to third-party countries using G-7 and EU tankers, insurance companies and credit institutions, only if the cargo is bought at or below the $60 per barrel cap.
Industry players and a U.S. official said in October that Russia can access enough tankers to ship most of its oil beyond the reach of the cap, underscoring the limits of the most ambitious plan yet to curb Russia’s wartime revenue.
According to Zelenskyy, the $60 cap would do little to deter Russia from waging war in Ukraine. “You wouldn’t call it a serious decision to set such a limit for Russian prices, which is quite comfortable for the budget of a terrorist state,” he said.
Zelenskyy had called for a cap of around $30 per barrel. That would be near Russia’s cost of production, letting Russian oil companies earn enough only to avoid capping wells that can be hard to restart. Russia needs some $60 to $70 per barrel to balance its budget.
Peskov said Russia was preparing its response to the move by the G-7 and allies.
“Russia and the Russian economy have the required capacity to fully meet the needs and requirements of the special military operation,” Peskov told reporters when asked if the move would undermine Moscow’s military effort.
He said it was “obvious and indisputable that the adoption of these decisions is a step towards destabilizing world energy markets.”
Global benchmark Brent crude was up 1.95% at $87.24 a barrel by 10:52 a.m. GMT.
Several Russian officials have previously said Moscow will not sell oil to countries that abide by the cap.
Former Russian President Dmitry Medvedev, now deputy chairperson of President Vladimir Putin’s Security Council, wrote on Telegram that the squeeze on Russian oil would lead to an “unimaginable” jump in world prices.
He suggested that the West would freeze this winter as a consequence of entering “an unequal battle with the Russian bear and General Frost.”
“What is good for a Russian is death for a German,” he added, referring to the winter cold. “One thing is clear – nothing good will come of it for consumers, that’s for sure. So let them stock up on schnapps, quilts and water heaters.”
If Moscow follows through on a threat not to sell oil to countries observing the cap, that could limit supply and raise prices, benefiting Russia to the extent it can evade the restrictions.
Russia could use methods such as those employed by Iran and Venezuela to dodge sanctions, such as using “dark fleet” tankers with obscure ownership and ship-to-ship transfers of oil to tankers with oil of similar quality to hide its origin. Russia or China could also organize their own insurance. Sanctions experts say that those steps will impose higher costs on Russia.
The U.S. and its allies have imposed sweeping sanctions on Russia since it invaded Ukraine on Feb. 24 and sent billions of dollars in aid to the Ukrainian government.
French President Emmanuel Macron, however, drew criticism from Ukraine and its Baltic allies over the weekend for suggesting the West should consider Russia’s need for security guarantees if it agrees to talks to end the war.
Zelenskyy’s aide, Mykhailo Podolyak, claimed the world needed security guarantees from Russia, not the other way around.
In Ukraine, Russia has been pounding power infrastructure since early October, causing blackouts and leaving millions without heating as temperatures plummet.
Russia says the assaults do not target civilians and are meant to reduce Ukraine’s ability to fight.
Ukraine says the attacks are a war crime.
Zelenskyy, in a video address on Sunday, urged citizens to be patient and strong in resisting the rigors of winter.
“To get through this winter, we must be even more resilient and even more united than ever,” he said.
Kyiv Mayor Vitaliy Klitschko said on Telegram that blackouts would be confined from Monday to planned “stabilization” cutoffs to get the grid working again, but added the situation remained “difficult.”
Ukraine’s largest power supplier, DTEK, said blackouts were planned for three other regions – Odessa, Donetsk and Dnipropetrovsk in Ukraine’s south and east.
In Kherson, largely without power since Russian forces abandoned the southern city last month, the regional governor said 85% of customers had electricity.
Shelling along front lines
On the battlefront, Zelenskyy said Ukrainian forces were holding positions along the front line, including near Bakhmut, viewed as Russia’s next target in their advance through Donetsk.
Ukraine’s military said Russian forces were pressing for improved tactical positions to advance in the Bakhmut and Avdiivka directions. About 16 settlements, including Bakhmut and Avdiivka, were shelled by tanks, mortars, barrels and rocket artillery, the General Staff of Ukraine’s armed forces added.
Russian forces are on the defensive along the Zaporizhzhia front-line while hitting four settlements in the Donetsk region and six in the Zaporizhzhia region, Ukraine’s army added.
Russia’s defense ministry said its troops were conducting successful operations in the area of Bakhmut and had pushed back Ukrainian attacks in the Donetsk direction.
Russian-installed officials in occupied Donetsk said Ukraine fired at least 10 Grad rockets into the city. There was no word on casualties.
In Kryvyi Rih, among the largest cities in southern Ukraine, Russian rockets killed one person and wounded three just after midnight, the governor of the Dnipropetrovsk region, Valentyn Reznichenko, said.
“They aimed at an industrial enterprise,” Reznichenko said on the Telegram messaging app without giving details.
Reuters could not independently verify battlefield reports.
The head of U.S. intelligence said fighting in Ukraine was running at a “reduced tempo” and that militaries on both sides were looking to refit and resupply to prepare for a counteroffensive after the winter.