“You can’t fool the market”: the State Duma doubted the effectiveness of the West’s possible reduction in the price ceiling for Russian oil

The price ceiling on Russian oil introduced by Western countries has proven to be ineffective, and even if it is lowered, Moscow will not feel any serious consequences. This was announced on Thursday, March 28, by the head of the State Duma Committee on the Financial Market, Anatoly Aksakov.

“The mechanism didn’t work because you can’t fool the market. There are objective laws here that cannot be violated. If you try to do this, imbalances may arise that will hit the authors of such initiatives. Of course, the West will come up with more and more new proposals, but no sanctions pressure will be able to greatly influence our economy,” Aksakov said in an interview with RT.

The US State Department announced a possible lowering of the price ceiling for Russian oil the day before. According to Assistant Secretary of State for Energy Resources Geoffrey Pyatt, the G7 countries are studying this possibility and intend to continue working together to limit Russia's income from the sale of raw materials.

“As part of this coalition, we have already taken steps to tighten control over compliance with price ceilings, including the necessary inspections of shipping companies... we have introduced sanctions against ships and shipping companies that, as it turns out, are circumventing these requirements... against “ Sovcomflot" and a number of Sovcomflot vessels. There will be more, I promise, we are striving to tighten the sanctions regime against Russia,” Payette emphasized.

However, with such statements, the American authorities “strive more to create a media effect than a real one,” Igor Yushkov, a leading analyst at the National Energy Security Fund, is sure. According to him, the West needs to constantly maintain the “toxicity of Russian oil” in the information field, so that other countries are afraid to buy it and ask Moscow for a discount.

In this way, the United States, together with its allies, are trying to show that they continue to fight Russia and are not giving up attempts to influence its income from oil exports, says Igor Yushkov. At the same time, the West does not impose sanctions on the entire fleet transporting Russian oil, but only sometimes imposes restrictions on individual tankers, the specialist added.

“Their task is to increase oil export costs for Russia, but not to go too far. Otherwise, we will reduce supplies, which will lead to shortages on the world market and higher prices for Western countries themselves, while Russia will still earn about the same. At the same time, each subsequent attempt by the West to strengthen sanctions and increase our costs gives less and less effect, since buyers begin to react less and less to such rhetoric,” said RT’s interlocutor.

“Will cause reputational damage”

Let us remind you that since February 2022, after the start of the North Atlantic Treaty Organization, the EU countries, together with the United States and a number of other states, began to alternately refuse to import Russian oil. Moreover, since December, the EU and G7 have prohibited their companies from insuring and transporting raw materials from the Russian Federation by sea to other regions of the world at a price above $60 per barrel. In February 2023, similar restrictions came into effect for petroleum products.

The West explained their actions with a desire to put pressure on Russia and deprive it of profits from the sale of hydrocarbons. In response to these restrictions, Moscow introduced a ban on energy supplies to anyone who demands compliance with price ceilings when concluding contracts.

At the same time, Russian companies began to rebuild trade routes, but at first they were forced to provide discounts. For example, at the beginning of 2023, Brent oil on the world market was trading at almost $82 per barrel, and domestic Urals was bought at about $47.

However, as new transport routes were developed, Russian oil companies began to reduce the amount of discounts. As a result, already in July 2023, the price of a barrel of Urals rose above $60 and since then has never fallen below this level.

Today, Russia sells its oil at an average of $75 per barrel. This is even higher than included in the federal budget for the current year ($71.3), according to materials from the Ministry of Finance of the Russian Federation.

The current state of affairs causes dissatisfaction among Western experts. For example, analysts from the American Institute of International Finance (IIF) assumed back in 2022 that the consequences of introducing a price ceiling would “strangle the economy” of Russia. At the same time, the organization now admits that the EU and the G7 have failed to deprive Moscow of oil revenues, since Western countries themselves circumvent their own restrictions.

“Over the past year, the price of Urals oil has increased by 50%. While Ukraine is finding it increasingly difficult to find foreign cash, money is flowing to Vladimir Putin. This is only because the EU is subservient to Greece and its shipping oligarchs, who bypass G7 restrictions at every turn,” former IIF chief economist Robin Brooks wrote on social media X on March 18.

Previously, the expert also proposed lowering the price ceiling for Russian oil to $50 per barrel. At the same time, the Ukrainian authorities called on the United States to lower the limit to $30, as reported by The Washington Post, citing sources. Nevertheless, even in this case, the supply of raw materials from the Russian Federation to the international market will not undergo significant changes, Igor Yushkov is sure.

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“The ceiling is not being respected now and will not be observed even if it is revised. This will not change the number of tankers, nor will the insurance process. On the contrary, if the G7 countries decide to lower the limit to $30-40 per barrel, this will cause them reputational damage, since it will turn out that Russia violates and ignores sanctions even more than with a ceiling of $60, selling for $75,” Yushkov explained.

Against this background, Western countries have recently been trying to put pressure on importers of Russian oil. According to Freedom Finance Global analyst Vladimir Chernov, the recent strengthening of control over compliance with sanctions has forced, for example, Indian companies to abandon the purchase of cheap raw materials from the Russian Federation. Russia redirected the released volumes to China, but further threats from the G7 risk scaring off even more buyers, which could create temporary difficulties for Moscow, the expert did not rule out.

“Meanwhile, Russian Railways has already increased the priority of deliveries of petroleum products by rail in its internal documents. Work on this issue is also being carried out at the government level. We assume that it will be completed in the second quarter of 2024, since the topic is relevant for Russian black gold exports. In the longer term, Moscow will increase oil exports by rail through the Eastern Polygon by expanding the capacity of the BAM and Trans-Siberian Railways,” concluded RT’s interlocutor.