G7 countries agree on limits on Russian oil. We will not deliver anything, Russia responds

G7 countries agree on limits on Russian oil. We will not deliver anything, Russia responds
G7 countries agree on limits on Russian oil. We will not deliver anything, Russia responds

Finance ministers and central bank governors of countries from the G7 group of developed countries agreed on Friday to introduce a price ceiling for Russian oil and oil products. The pricing mechanism has yet to be decided, foreign press agencies inform.

On Thursday, Russian Deputy Prime Minister Alexander Novak called the introduction of a price cap a “complete absurdity” that would destabilize the entire industry. According to him, Russia will not supply oil or oil products to countries that support the establishment of a price ceiling.

The measure will enter into force on December 5 for crude oil and on February 5 of next year for refined petroleum products. These are the same dates when, as part of the EU’s sixth sanctions package against Russia, a partial embargo on the import of Russian oil and oil products into the EU will begin to apply.

It is probably not the right thing to introduce sanctions, the effect of which tends to affect the countries that issue them.

Jiří Gavor, executive director of the Association of Independent Energy Suppliers

Already in June, the G7 states announced that they would consider capping Russian oil prices as another method of putting pressure on Russia for its aggression against Ukraine. At the same time, Russia is one of the world’s largest oil exporters. US Treasury Secretary Janet Yellen said the measure would also help lower global energy prices.

According to Jiří Gavor, executive director of the Association of Independent Energy Suppliers (ENA), this sanctioning measure can be rather counterproductive.

“If other countries join the measures against price increases, the supply on the market can be significantly reduced, which would once again drive the prices of oil and oil products higher. The West does not need that at the moment. It is probably not the right thing to introduce sanctions, the effect of which tends to affect the countries that issue them,” he commented for SZ Byznys.

Among other things, Russia declared some time ago that it will not supply oil and oil products to countries that introduce a price ceiling.

“I believe that third world countries outside the Western bloc, such as India, China, African or South American countries, will not join the measure that has grown on the soil of the major Western economies. These countries will most likely remain outside, and thus this type of sanction will be ineffective,” added Jiří Gavor.

Golden eggs oil and gas

This year, Russia could increase revenues from the sale of oil up to 337.5 billion dollars (about 8.3 trillion CZK), which is 38 percent more than last year. This follows from a document of the Russian Ministry of Economy, which is available to Reuters.

The share of income from oil and natural gas in the total income of the federal budget of Russia was around 34 percent even before the invasion of Ukraine. At that time, the ratio of oil and gas was roughly 3.5 to 4 to 1, Michal Macenauer, director of strategy at the consulting company EGÚ Brno, said in April.

Thus, the share of natural gas alone was roughly only 20 to 25% of Moscow’s total income from oil and natural gas. And approximately 75% of the gas exported from Russia went to customers in Europe.

In the case of price ceilings, Russia’s income may be strongly reduced, Macenauer warned today.

Deputy Prime Minister Novak also stated that Russian companies are ready for the European Union’s December embargo on the import of Russian oil and that they can maintain production at the current level. According to the Deputy Prime Minister’s forecast, mining may amount to 520 to 525 million tons by the end of the year. Last year, Russia extracted 524 million tons of oil.

Last year, 6.8 million tons of crude oil were imported into the Czech Republic, a year-on-year increase of 10.8 percent. Half of it was imported from Russia, according to statistics from the Ministry of Industry and Trade. The second largest importer was Kazakhstan.

European Commission (EC) President Ursula von der Leyen said on Friday that the European Union should also cap the price of gas transported by pipeline from Russia to mitigate the effects of market manipulation by Russian President Vladimir Putin. Former Russian President Dmitry Medvedev responded to her words by announcing that Moscow would stop supplying gas to the Union in that case.

Medvedev is currently the deputy chairman of the Security Council of the Russian Federation and the chairman of the ruling United Russia party.

At the same time, the head of the EU executive called for energy savings, she should present a concrete plan in mid-September.

In the spring, EU states tasked the commission with preparing an analysis of possible price caps due to the unprecedented rise in energy prices related to the Russian invasion of Ukraine.

“I am firmly convinced that it is time to cap the price of gas from Russian gas pipelines to Europe,” said the German politician after Friday’s meeting with the leadership of the Christian Democrats of Germany (CDU).

According to her, in addition to savings, investments in renewable sources are other ways to deal with the rise in gas and electricity prices.

Photo: Gazprom Export, List of News

Gas pipelines leading from Russia to Europe.

According to notes obtained by the Bloomberg agency, the European Commission is preparing a series of measures aimed at reducing the demand for energy and capping the prices of electricity from renewable sources, nuclear power plants and coal.

Although intervention tools “may help mitigate the effects of the crisis, especially for some categories of consumers, they will not return energy prices to pre-crisis levels or remove the significant effects of the crisis on inflation and the European economy as a whole,” the Commission said in a note. “Given the underlying economic factors currently affecting energy markets, we don’t see any type of market intervention having that effect in the short term.”

The scope of the measures will be discussed by the ministers of energy on September 9 at an extraordinary meeting. The Czechia also has its place at the table. Minister of Industry and Trade Jozef Síkela will present his proposal at the meeting. Earlier this week, he proposed capping the price of gas used to generate electricity.

The price of gas for the European market for delivery in October hovered around 213 euros (5,215 CZK) per megawatt hour (MWh) shortly after midday at the Title Transfer Facility (TTF) virtual trading hub in the Netherlands. A year ago it was about 29 euros and two years ago it was about 15 euros/MWh. It began to increase more noticeably last autumn, reaching a maximum of around 345 euros/MWh shortly after the February invasion of Ukraine by Russian troops, but fell below 200 euros per MWh on the same day. Prices in TTF are decisive for the European market.

Since July, the Russian company Gazprom has reduced the volume of supplies through the Nord Stream gas pipeline to a fifth of its capacity. On Wednesday, it was completely interrupted due to maintenance, but the current records of the capacity reservation for the transportation of the raw material indicate that on Saturday morning the deliveries will resume as planned. However, according to Russian ex-president and current deputy chairman of the Russian Security Council Medvedev, the possible introduction of price ceilings will change this situation.

“There will simply be no Russian gas in Europe,” Medvedev wrote on the Telegram social network, according to Reuters.

The energy ministers of the EU countries will discuss the possibility of introducing maximum gas prices in a week, whose extraordinary meeting was called by the Czech Presidency of the Council of the EU. In response to the rapid rise in prices, more and more countries are talking about capping in recent days. Von der Leyen should present a more detailed procedure on September 14, when she delivers her annual State of the EU message.

The President of the EC emphasized that the Union has already taken some important steps in the interest of its energy security and efforts to reduce prices. For example, it managed to fill the gas reservoirs by 80 percent already two months before the original goal, she added.

We expanded the report to include the outcome of the negotiations of the G7 countries as well as Russia’s reaction to the statements of both the G7 and the European Commission.

The article is in Czech

Tags: countries agree limits Russian oil deliver Russia responds

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