Oil and energy prices have been the number 1 topic of late. What is happening now is that the G7 countries have agreed to cap prices. This may be good news, especially for the industry, which pays much of the energy price. However, the pricing mechanism is yet to be decided.
Russia does not like this move
Russian Deputy Prime Minister Alexander Novak described the introduction of a price ceiling as an “absolute absurdity” that will destabilize the entire industry. He said that Russia will not supply oil or oil products to countries that support the price ceiling. That could throw some countries into a difficult decision of whether they would rather worsen their energy situation or worsen political relations within the Western G7 group.
The measure will come into force on 5 December for crude oil and on 5 February next year for processed oil products. These are the same dates that partial embargoes on imports of Russian oil and oil products into the EU will start to apply under the EU’s sixth sanctions package against Russia.
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The G7 countries already announced in June that they would consider capping Russian oil prices as another method to put pressure on Russia for its aggression against Ukraine. US Treasury Secretary Janet Yellen thinks that the measure will also help to reduce energy prices in the world.
Russian companies are ready for the European embargo
Vice-President Novak also said that Russian companies are prepared for the European Union’s December embargo on Russian oil imports and that they can maintain production at current levels. According to the deputy prime minister’s forecast, production could reach 520 to 525 million tonnes by the end of the year. Last year, Russia produced 524 million tonnes of oil.
Russia has significantly increased its exports of crude oil and petroleum products over the last period, mainly to China, with which it has started to trade more on multiple levels. And it’s not just importing goods, but Russia is now considering significantly starting to buy Chinese currency, the Yuan, as part of its foreign exchange reserves. You can read more about this move in our recent article.