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25 Dec, 2022 15:28

Russia explains potential oil output cut

The finance minister has warned that Moscow may redirect supplies due to the EU price cap, even as costs rise
Russia explains potential oil output cut

Russia will halt oil supplies to nations that impose a price cap on its crude exports, the country’s finance minister, Anton Siluanov, said on Sunday. He also admitted the possibility of cuts to production.

The minister added that Russia would seek new markets and logistics solutions even if they are more expensive.

“We won't sell oil under contracts that will specify price limits offered by Western countries. This is out of the question,” Siluanov said in an interview with Saudi media outlet Asharq News.

“How will this affect the economy, the country's budget, and the volume of production? Yes, we will have to limit production somewhere,” the minister added.

A $60 per barrel ceiling on Russian seaborne crude, imposed by the G7 and EU, came into force on December 5. That measure, along with a ban on EU imports of seaborne Russian flows, is aimed at slashing Moscow’s energy revenues. Russian oil cargoes that are traded above the threshold cannot access key services provided by Western companies, including insurance.

Siluanov characterized the decision to set a price ceiling for Russian seaborne oil as the “dictatorship of a consumer.” Noting that, in theory, the nations imposing the price cap could introduce similar restrictions for other producers as well, he insisted that Russia could not agree to such policies.

The minister also pledged that all of Russia's budgetary obligations would be fulfilled despite price restrictions, sanctions and price fluctuations across the world's markets.

His statements echo comments made by Deputy Prime Minister Aleksandr Novak earlier in the week. Novak said that Moscow wouldn’t sell crude to countries that impose a price cap, and may respond to the measure by reducing oil production by 500,000-700,000 barrels a day in early 2023.

Russia is the world’s third largest oil producer and the curbs would equate to roughly 5-6% of the country’s daily output.

The idea of oil production cuts was first voiced by Russian President Vladimir Putin on December 9. The Russian leader stressed that no decisions on the issue had been made as of then.

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