Russia will be able to survive the new Western sanctions against the production and supply of oil quite painlessly. The US expectation that Russia will have to sell oil under the terms of the price cap mechanism may not justify itself, say experts interviewed by Bloomberg.
The agency notes that one of the key arguments of the American establishment regarding the effectiveness of the price cap mechanism was that Russian oil fields would be under the threat of eternal conservation – that is, Russia would not be able to restart production on them if they were stopped. However, the president of the consulting company Rapidan Energy Group, a former adviser to President George W. Bush, Robert McNally, has a different opinion.
According to him, the Russian oil industry can relatively painlessly survive the reduction in oil production up to 3 million barrels per day. Moreover, Russia will not have to reduce to such volumes: in the conditions of the operation of the mechanism and the decision of OPEC + to reduce production, even a small drop in it inside Russia will already significantly hit the markets and lead to higher prices, McNally believes.
“Russia may not find a plausible excuse to immediately cut production by 3 million barrels a day, but Putin may not need it. Even half of this volume can immediately hit the markets, ”Kevin Book, managing director of research company ClearView Energy Partners, quotes the agency.
According to the results of July, oil and condensate production in Russia increased to 10.8 million barrels per day. At the moment, Russia ranks third in terms of production, second only to Saudi Arabia (about 11 million barrels per day) and the United States (12 million barrels per day). McNally is confident that over the years of cooperation with Western companies, Russian oil companies have learned to maintain the survivability of wells, which means that a reduction in production will not be critical for them.
Moreover, Russia can respond to such measures not only by reducing production, but also by stopping the pumping of oil through pipelines, including Druzhba and the Caspian Pipeline Consortium, agency experts say.
On Wednesday, October 5, members of OPEC + agreed to a record reduction in oil production since 2020 – immediately by 2 million barrels per day. The cartel expects that this will keep current oil prices in the region of $90-100 per barrel. Before the OPEC+ decision, it became known that the European Union as a whole decided to join the measures to reduce Russia's oil revenues. In addition to the oil embargo, which will come into effect in December 2022, the EU intends to join the Russian oil price ceiling mechanism. It involves a ban on the supply of Russian oil to third countries if their price exceeds the established limit. Experts believe that this will reduce the supply of Russian oil on the market, which, in turn, will lead to an increase in energy prices.