Russia Signals Up to 7% Oil Production Cut Due to Price Cap Measure

Russian Deputy Prime Minister "Oil Production Could Decrease by 5-7% Early Next Year"
President Putin to Sign Presidential Decree Next Week on Price Cap Response

[Asia Economy Reporter Kum Boryeong] Russia announced on the 23rd (local time) that it may pursue an oil production cut of up to 7%. This is a response to the price cap on Russian crude oil imposed by the West.

According to major foreign media, Alexander Novak, Russia's Deputy Prime Minister, stated in an interview with a state-run broadcaster on the same day, "We may reduce oil production by 5-7% early next year."

Considering Russia's daily oil production is about 10 million barrels, this amounts to approximately 500,000 to 700,000 barrels per day.

Vladimir Putin, President of Russia (Photo by Yonhap News)

Deputy Prime Minister Novak emphasized, "Given the current situation, it is possible to take the risk of production cuts rather than comply with sales policies related to the price cap," adding, "The current cap is $60, but who knows what it will be tomorrow. Relying on decisions made by unfriendly countries is unacceptable to us."

Along with this, Novak mentioned that the key content of the presidential decree that President Vladimir Putin will sign next week as a countermeasure to the price cap will be a "ban on exports to countries that implement the system." The day before, President Putin said he would sign the related presidential decree on the 26th or 27th as a response to the price cap.

Novak asserted, "It will be difficult for the global economy to develop without Russian energy." He believes that Europe, which has introduced price caps not only on Russian crude oil but also on gas, will face a gas shortage crisis.

The European Union (EU), the Group of Seven (G7), Australia, and 27 other countries have limited the price of Russian crude oil to below $60 per barrel since the 5th as a sanction against Russia's invasion of Ukraine. Shipping companies that do not comply with this standard are prohibited from using services from U.S. and European insurance companies.

Additionally, the EU has agreed to apply a price cap on natural gas starting February 15 next year for one year if the gas price exceeds 180 euros per megawatt-hour (MWh) and is 35 euros higher than the global liquefied natural gas (LNG) market price for three consecutive days, in order to prevent a surge in natural gas prices.