Putin bans Russian oil sales to countries that accept West’s price cap

Russia announced on Tuesday it would ban oil sales to countries that adhere to a price cap imposed this month by the West, providing a long-awaited response to the most dramatic step taken so far to limit Moscow’s ability to raise funds for its war in Ukraine. .

Under the price cap, which took effect on December 5, oil traders must promise not to pay more than $60 per US barrel for Russian offshore oil to retain access to Western financing for an important aspect of global shipping such as insurance.

The cap has been set close to the current price for Russian oil, but far below the prices Russia was able to sell for many years ago, when windfall energy profits helped Moscow offset the impact of financial sanctions.

Russia is the world’s second-largest oil exporter after Saudi Arabia, and any real disruption to those sales would have far-reaching consequences for global energy supplies.

The decree of President Vladimir Putin, published on the government portal and the website of the Kremlin, was given as a direct response to “unfriendly actions and contrary to international law by the United States and foreign countries and international organizations that join them.”

The Kremlin ban will stop the sale of crude oil to countries participating in the price cap from February 1-July 1, 2023. A separate ban on refined oil products such as gasoline and diesel will take effect on a date to be determined by the government. Putin will have the authority to override these measures in special cases.

The capitalization of Western prices, which was not seen even during the Cold War between the West and the Soviet Union, was aimed at blocking Russian state coffers and Moscow’s military efforts in Ukraine – without disrupting the market by actually blocking Russian supplies.

According to Finance Minister Anton Siluanov, Russia’s budget deficit could be larger than the planned two percent of GDP in 2023 as the oil price cap reduces Russia’s export earnings, an additional fiscal hurdle for Moscow as it spends heavily on its military campaign in Ukraine.

Some analysts say the cap will have a direct impact on Moscow’s oil revenues, as Russian oil prices have fallen. But it could limit Moscow’s ability to profit from future price shocks.

Heavy fighting in Bakhmut

Russian forces attacked and bombed towns and cities in eastern and southern Ukraine again on Tuesday. After some dramatic Ukrainian gains in the fall, the war has entered a slow, grinding phase as the bitter winter weather looms ahead.

The heaviest fighting has been around the eastern city of Bakhmut, which the Russians have been trying for months to storm at a huge cost in lives, and further north in the cities of Svatove and Kreminna, where Ukraine is trying to break the Russian defense line.

In Bakhmut, home to 70,000 people before the war and now mostly a bombed-out ghost town, a Reuters reporter saw flames burning through large residential buildings, while debris littered the streets and most buildings had windows blown out.

“Our building was destroyed. There was a shop in our building, now it’s gone,” said Oleksandr, 85, adding that he was the only resident left.

Nearby, Pilaheia, 73, said he’s used to “constant explosions.”

The British Ministry of Defense said in an update: “Russia continues to launch small-scale attacks in these areas (Bakhmut and Svatove), although small areas have changed hands.”

In recent times, Putin has repeatedly spoken of his desire to negotiate peace in his comments. But the foreign minister, Sergei Lavrov, made it clear that Moscow still had a list of preconditions, including Ukraine recognizing Russia’s conquest by force of about a fifth of Ukrainian territory, which it says has been annexed.

Kyiv says it won the war and will not agree to give up its land.

The TASS news agency quoted Lavrov as saying late on Monday: “Our proposal to demilitarize and denazify the regime-controlled areas, eliminate the Russian security threat there, including our new land, is known to the enemy.”

“The point is simple: Apply it for your own good. Otherwise, the issue will be decided by the Russian army,” Lavrov said.

Ukrainian President Volodymyr Zelenskyy said that as a result of attacks on Ukraine’s energy infrastructure, nearly nine million people are now without power – equivalent to roughly a quarter of the country’s population.

Russia has been openly targeting Ukraine’s energy infrastructure with missiles and drones since October, in what Kyiv says are strikes without a military objective, designed only to harm civilians. Moscow says its aim is to reduce Ukraine’s ability to fight.

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What was meant to be a campaign to subdue Ukraine in a matter of days was a military failure for the Kremlin, whose forces were defeated on the outskirts of Kyiv in the spring and forced to flee the rest of the region in the fall.

Putin has responded by calling up hundreds of thousands of reservists for the first time since World War II to fight in “special military operations”.

In the latest setback for the Russian military, a suspected Ukrainian drone hit the main base of Russia’s long-range strategic bomber fleet, hundreds of kilometers in Russian airspace, on Monday. Moscow said it had shot the drone down, but admitted at least three soldiers were killed.

It was the second time the base had been hit since the start of December, a sign Russia had yet to close the gap in its air defenses that made an attack possible.