Putin bans Oil Sales to G7 countries, a Double-edge Sword?

Lorenzo Bagnato

27 December 2022 - 19:41

twitter whatsapp

With a presidential decree on Tuesday, Vladimir Putin banned oil exports to countries that implement the price cap. Will it have any real effect?

Putin bans Oil Sales to G7 countries, a Double-edge Sword?

In an unexpected and anticipated diplomatic move, Russian president Vladimir Putin stopped the sale of oil to countries applying the price cap. The news comes this Tuesday, roughly 20 days after the G7 price cap went into effect.

After long and exhausting negotiations, the Western alliance finally settled on a $60 per barrel price limit on Russian crude. This measure is meant to deprive Russia of its rich fuel exports, or at least limiting its revenue stream. $60 per barrel was roughly $30 lower than market price when the price cap went into effect.

But ever since the price cap was still in gestation, Putin and the Kremlin announced they would ban any oil sale to these countries. And now, with a presidential decree, he put this promise into law.

Deliveries of Russian oil and oil products to foreign entities and individuals are banned, on the condition that in the contracts for these supplies, the use of a maximum price fixing mechanism is directly or indirectly envisaged.” This is the decree’s text, which specifically targets any country implementing the price cap.

For the moment, the EU, the G7 and Australia all agreed upon the measure. Most importantly, however, neither China nor India joined the Western alliance.

What does this mean for Russia

The export ban of oil to countries that implement the price cap will definitely be a double-edge sword for Putin. A Bloomberg report of a few months ago showed that European imports of Russian oil declined by more than 90% in 2022.

As of the date of the report, only the Netherlands were importing oil from Russia, while the rest of the continent had stopped.

Therefore, it’s more than likely that the European market is officially closed for Putin, whether or not he decides to export oil to them. As for the rest of the G7 alliance, only Japan runs the risk of an energy crisis without Russian oil. However, they too can find different sources and have already increased oil imports from Saudi Arabia in 2022.

So, at the end of the day, Putin’s decree did not deal any significant damage to the West. Surely not more than the energy crisis already provided for.

About Russia, however, it is true that they find themselves with a debilitated revenue stream, especially with talks of a gas price cap as well.

The only hope for Putin is that China and India will keep buying oil from Moscow. But that, too, is a double edged sword.

Both China and (especially) India keep close relationships with the West. There are few to no pipelines that directly connect Russia to these countries: for the time being oil export has to rely on ship transport.

In essence, while it could make for good headlines in Russian propaganda outlets, this decree is nothing but a spiteful, useless revenge.

Trading online

Fai Trading Online senza rischi con un conto demo gratuito: puoi operare su Forex, Borsa, Indici, Materie prime e Criptovalute.