Reached the ceiling

The Big Seven countries agreed on the introduction of a ceiling of oil prices from the Russian Federation. What does this mean for the Russian budget?

The specific level of this ceiling has not yet been set. It is stated that it will be determined by the “wide coalition of countries that decided to adhere to restrictions” on the basis of a number of technical aspects. The maximum price level will be published, if necessary, it can be revised.

The G-7 finance ministers also called on all oil producing states to increase oil production in order to reduce volatility in energy markets.

“In this regard, we welcome the recent OPEC decision to increase production against the background of the conditions of a limited offer,” the statement says.

The restrictions on the price of "oil from the Russian Federation" should be valid for December 5, 2022 for oil and from February 5, 2023 for oil products. They will touch the fuel supplied by sea transport. If oil is purchased at prices above the ceiling, its transportation (as well as insurance) is prohibited. It is obvious that the terms of the input of the “ceiling of oil prices” are associated with the ban on the import of raw oil from Russia, which enters into force on December 1, 2022, and the prohibition of importing oil products from February 1, 2023, adopted as part of the sixth package of EU sanctions. Until 2024, the Czech Republic, Slovakia and Hungary received a delay - countries depending on the supply of the Druzhba oil pipeline.

What does it matter to the Russian economy? Significant. The Russian budget in the first half of 2022 turned out to be pronounced exclusively due to high oil prices: according to the results of the first half of 2022, the price of Urals amounted to $ 85.4 per barrel - almost a third more than predicted the Ministry of Finance when drawing up the budget. Accordingly, budget revenues grew by almost a quarter. High oil prices were pulled by the growth of not only “oil and gas”, but also other budget revenues - where VAT and income taxes grew - they became a derivative of the grown revenues of raw materials corporations.

Since the end of February, the European Union countries have been paid for Russian oil for nearly 45 billion euros (as well as more than 35 billion euros for gas and almost 3 billion per coal). Most of this amount fell on Germany, which bought Russian oil for 14, 6 billion euros.

The Russian authorities with the lips of the Deputy Prime Minister Alexander Novak have already stated that they would not sell oil to those countries that will introduce a price ceiling for oil from Russia. But in any case, from the beginning of December, European countries will not be able to officially buy Russian oil.

Of course, the Russian side will say that all oil that it will not sell to Europe will direct to China. The only question is what volumes of oil and at what price China will be ready to buy - now the size of the discounts with which China and India buy Russian oil are unknown, analysts estimate them in the range from $ 20 to $ 30 per barrel.

Obviously, an increase in the volume of deliveries to the East will give these countries leverage of pressure on Russian exporters who will not have another option on how to agree to the terms of buyers.

There will be less hydrocarbon purchase prices - there will be less oil and gas revenues of the budget, which, according to the results of July, and so reduced by 22.5%. In addition, the Government of the Russian Federation in this situation probably expects that the reduction in the supply of Russian oil in the market will pull up prices, and in this situation the discounts are not terrible - the main thing is that the currency comes to the country in the volume necessary for the authorities.

However, the Russian authorities have a tool in the reserve that they always used to reduce the flow of petrodollars - the devaluation of the ruble. Only before he was devalued in relation to the dollar, and now they can in relation to Yuan, for example.