The Western press and analysts expected that the Russian response to the sanctions of the Western coalition on Russian oil would be much more severe, but the document published on Tuesday, December 27, surprised the energy analytical community in many ways – Moscow did not introduce any tough measures in response to the sanctions. In particular, Bloomberg notes that the market reacted calmly to the publication of Vladimir Putin's decree: instead of a sharp rise in energy prices, which Russian officials have repeatedly warned about, world oil prices, on the contrary, began to decline.
On Tuesday, the US benchmark WTI closed at $79.83 per barrel, while North Sea Brent closed at $84.99. During trading on Wednesday, December 28, oil prices continue to decline. The agency notes that the decline began due to the absence of strict measures to counter the “ceiling” in the document – it does not introduce a “price bottom”, a direct ban on exports to countries that supported sanctions, as well as a maximum discount on Russian oil.
The British Financial Times notes that the document is worded so vaguely that it allows delivery within the "ceiling" if the "ceiling" itself is not mentioned in the contract. Moreover, in exceptional cases, the President reserves the right to allow the supply of oil or petroleum products even within the "Western ceiling" of prices. The publication suggests that this loophole is left for India and China – the key buyers of oil, after the exodus of European buyers.
The abandonment of tough measures in response to the "Western ceiling" may indicate that Western sanctions have begun to pose a serious threat to the Russian economy and budget in particular. Capital Economics expert Nicholas Farr, in a commentary for CNBC, notes that the reduction in oil exports from Russia is already visible, although Western sanctions have only just begun to work.
“It is still too early to assess the impact of the G7 oil price cap and the EU ban on Russian oil imports, which came into effect on December 5, but early signs indicate that the Russian economy is beginning to experience serious difficulties. The data shows that exports have fallen, and the difference between the price of Brent and Urals has reached a maximum, ”the expert says.
On Tuesday, December 27, Russian President Vladimir Putin signed a decree that was supposed to be a response to the Western "price ceiling" on Russian oil. The Russian authorities feared that the response would be tough, and there would be no supplies to countries that support Western restrictions. In fact, the wording indicates that such supplies will still be possible, and the key requirement was the absence of “direct or indirect” evidence of the sale of oil within the “ceiling”. The requirements come into force from February 2023.
Western sanctions have been in effect since December 5. They suggest the introduction of a price limit for oil from Russia in the amount of $60 per barrel. If the supply is sold at a price higher, it loses Western insurance, financial, logistics and other services, which greatly complicates the supply. Restrictions have already significantly reduced oil exports from Russia; moreover, some shipments to India still came with Western insurance, indicating that Russia was forced to comply with Western sanctions. Since February 5, similar measures have been taken against Russian oil products.