Putin Declares Russia May Reduce Oil Production in Reaction to G-7 Price Cap

Russia could reduce its oil production to respond to the G-7 price cap, President Vladimir Putin stated.

Putin stated to reporters that Moscow will announce its response in a presidential decree within the next few days. He did not provide further details.

Putin stated that while I’m not saying right now that this decision is made, we will consider possible production cuts if necessary. “I already stated that we won’t sell oil anymore to countries that are part of a price cap.

The largest international sanctions against Russia’s oil were put into effect Monday after months of negotiations and planning. The European Union has banned nearly all seaborne imports from Russia of crude oil. The G-7 also agreed that anyone who wants to use key services provided by the bloc — including insurance — must pay less than $60 per barrel.

There are many unanswered questions about the effects of these measures on the oil markets. These include the depth of non-European insurance markets and the willingness of some tanker owners to trade with Russia.

“No good options exist for Russia, no matter what they do,” Ben Harris, the assistant secretary for economic policies at the US Treasury said earlier this week. “Any disruption in supply not only affects their partners but also hurts their pockets.”

Production and Revenue

Russia claims that the price cap on oil production will have limited effects. Pavel Sorokin, First Deputy Energy Minister, stated earlier this week that any volatility in the nation’s output “won’t be higher than those in spring.”

According to Bloomberg industry data, Russia had pumped around 10.05 million barrels per day in April, two months after the invasion of Ukraine. This was down from 11.08 million per day in February. The output started to recover and reached an eight-month high in December.

Russia’s revenue will not be affected by the price cap, as the threshold of $60 per barrel set by the west “corresponds with the prices at which our products are sold today,” Putin stated. We already sell at these prices so don’t worry too much about the budget.

According to data from Argus Media (whose figures the Russian government used to calculate export duties), Russia’s Urals flagship crude oil that is exported from Primorsk, Baltic, was valued at $41.59 per barrel on Thursday.

However, Russia’s ESPO crude oil blend in Asia trades at $67.11 a bar on Thursday, Argus data shows.

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