- Russia believes that the price cap mechanism for the sale of Russian oil and petroleum products is an interference in market relations and a continuation of the destructive energy policy of the collective West countries,
- in the future it may not only lead to lower investment in the oil sector and, consequently, to oil shortages in the future, but may also be extended to other sectors of the global economy with similar consequences,
- as one of the steps to neutralize the threat to the global oil market, Russia has introduced a ban on directly or indirectly using references to any illegitimate restrictions in oil supply contracts,
- today we sell the entire volume of oil produced,
- however, as stated earlier, we will not sell oil to those who directly or indirectly adhere to the principles of the price cap,
- in this regard, Russia will voluntarily cut production by 500,000 bbl/d in March,
- this will help restore market relations,
- when making further decisions, we will act based on the evolving market situation.
The baseline from which the 500,000 bbl/d cut will be measured is not specified in the statement.
The baseline may be either the current production level (9.8-9.9 million bbl/d) or Russia's quota under the OPEC+ (10.478 million bbl/d).
TASS, citing an industry source, reported that Russia will cut oil production from its actual output.
That is, in March 2023 Russia may reduce oil production to 9.3-9.4 million bbl/d.
No approval from OPEC+ will be required for this step; Saudi Arabia took similar measures, additionally and voluntarily cutting production in February-April 2021 by 1 million bbl/d above its obligations under OPEC+.
Earlier, A. Novak said, that Russian oil production in February 2023 remains stable at the January level — 9.8-9.9 million bbl/d.
Russian oil production has held at this level since September 2022, when production recovered after a fall of 1.2 million bbl/d in March-April 2022.
In December 2022, A. Novak allowed that Russia would cut oil production as a result of the EU embargo and the price cap set by the Price Cap Coalition comprising the G7, the EU
The deputy prime minister estimated the reduction at 5-7%; in absolute terms, this meant a cut of 500,000-700,000 bbl/d.
The price cap on Russian seaborne oil (USD 60/bbl) came into force 5 December 2022, and for petroleum products (USD 45/bbl for petroleum products sold at a discount to oil and USD 100/bbl for premium petroleum products) — from 5 February 2023
In both cases, the price caps came into force simultaneously with the corresponding EU embargoes.
For Russia, this has resulted in a significant change in logistics, as well as a sharp increase in the discount on Urals crude due to the high cost of freight caused by the risks that carriers and counterparties face regarding possible sanctions.
The growth of the discount on Russian oil has set the authorities the task of minimizing the negative impact on budget revenues.
In this regard, a number of steps have already been taken:
- On 27 December 2022, Russian President V. Putin signed a counter-cap decree prohibiting the sale of oil to foreign persons under contracts that use a mechanism of fixing a maximum price, at all stages of supply up to the end buyer,
- On 28 January 2023, the Russian government established the procedure for implementing the presidential decree by adopting a resolution that specifies the mechanisms for monitoring the non-application of the price cap:
- exporters will have to ensure that oil resale up to the end recipient is not carried out under price-fixing conditions,
- The Federal Customs Service (FCS) will verify exporters' contracts,
- the monitoring function is assigned to the Russian Ministry of Energy.
- following a meeting with members of the government on 11 January 2023, V. Putin instructed the Russian government to submit, by 1 March 2023, proposals for refining the methodology for determining prices for oil and petroleum products for taxation purposes, so as to minimize the negative impact on federal budget revenues.
The problem of declining oil and gas revenues of the Russian budget is largely related to the use of Argus Urals quotations for calculating taxes in the oil and gas sector.
In 2023, the Russian Ministry of Finance continues to use the quotation for Russian crude Urals on a CIF basis from the Argus price agency, which is used in calculating the mineral extraction tax (MET), the additional income tax (AIT) and the export duty on oil.
At the same time, CIF quotations at European ports — CIF Rotterdam and CIF Augusta — have lost their relevance due to the EU embargo.
In November 2022, Argus changed its methodology for determining Urals quotations, retaining the CIF quotation but making it calculated based on the value of Urals on delivery bases FOB Primorsk, Ust-Luga and Novorossiysk, to which the costs of delivery to European ports are added (the cost of freight, port dues, cargo insurance).
In January, the Russian Ministry of Economic Development reported that Russian government agencies are working on the transition to independent domestic sources of information on oil prices instead of Argus data.
In the future, this could involve the creation of a comprehensive system of national price indicators.
The Russian Ministry of Finance reported that in the 1st quarter of 2023, it will analyze alternative oil quotations, including those of the St. Petersburg International Mercantile Exchange (SPIMEX).
Kommersant previously wrote, that the government is considering a complete abandonment of the Urals quotation and a transition to calculating oil taxes based on Brent quotations, taking into account the discount and the cost of freight.
However, this contradicts the policy of the Russian authorities, which since the introduction of sanctions have sought, as far as possible, to preserve the market nature of the oil sector.
It is not excluded that, on these grounds and in order to gain additional time for developing a more adequate approach in tax policy, Russia has taken the path of voluntary production cuts tested by Saudi Arabia.