Vladimir Putin threatens to cut oil output after G7 price cap

Russian president Vladimir Putin has threatened to cut oil production in response to the G7’s price cap on Moscow’s crude exports, a measure western countries hope will keep oil flowing while denting revenues for the Kremlin’s war in Ukraine.

Speaking to reporters on Friday, Putin said Russia “would simply not sell to the countries” that imposed the price ceiling or joined an EU embargo on buying the country’s oil.

“We will possibly, if we have to, even think — I’m not saying that it’s a decision — about a possible cut in production,” Putin said following a summit in Bishkek, Kyrgyzstan.

Putin’s comments were his first indication of the Kremlin’s possible response to the EU sanctions and associated oil price cap, which have stopped EU imports of seaborne Russian crude and sought to impose a limit on the price other countries can pay.

Putin called the move a “non-market, harmful decision” and said it would be “stupid for everyone” to enforce it.

The price cap has been designed to ensure the EU’s worldwide ban on the provision of shipping and insurance services to Russia crude shipments does not result in a sudden collapse in its exports that would drive up global oil prices. Under the measures, shipments of Russian crude to countries outside the EU can continue to access European services, if the oil is sold for $60 a barrel or less.

OilX, which tracks global crude shipments, said Russian oil exports so far remained as high as at any point this year, adding that any drop due to the sanctions would only be visible later in the first quarter of 2023.

Russia is the world’s largest energy exporter and grew its budget revenue from oil and gas sales by 70 per cent in the first half of 2022 thanks to rising prices.

The hard currency income has cushioned the blow from western sanctions to Russia’s economy while helping further fund its invasion of Ukraine as it sputters into a tenth month.

Oil prices have also been supported by Opec, led by Saudi Arabia, and its allies including Russia, which co-ordinate crude production and agreed in October to cut the group’s output target by 2mn barrels a day to stop oil prices falling.

Putin acknowledged the agreement with the so-called Opec+ group, adding that Russia would have to “think additionally” about any country-specific cuts.

He said Russia was relatively insulated from the price cap because “the ceiling they have suggested is in line with the prices we are selling at today.”

Urals, Russia’s flagship blend, which has traded at a discount to Brent crude since the start of the war, was selling at about $53 a barrel on Friday afternoon, according to Reuters data.

“In that sense this decision doesn’t affect us at all, it’s not important for us, to be honest,” Putin added. He argued that the price cap harmed all oil producers because “if someone agrees at some point that the consumer determines the price, then the whole industry will collapse, because the consumer will always insist on a lower price.”

Putin warned that the price cap could lead, in the longer run, to a “catastrophic jump in prices and the collapse of global energy” if countries observed it.

If buyers do manage to get lower prices for oil, “prices will go down, investment will be reduced to zero, and in the end prices will go through the roof and hurt the people making these decisions.”