Which Countries Can Officially Not Comply With G7 Price Cap on Russia’s Oil?

 / Go to the mediabankDruzhba oil pipeline’s initial junction / Go to the mediabankA price cap on Russian oil at $60 per barrel, agreed by the European Union, G7 nations and Australia, went into effect on December 5. The EU’s embargo on maritime imports of Russian crude also came into force on the same day. Moscow has made it clear that it would not bow to the Group of Seven demands.On December 5, new sanctions rustled up by the Group of Seven (G7) countries and the European Union to punish Russia for its special military operation in Ukraine came into effect.They presuppose a price cap on Russian oil at $60 per barrel, enforced by the G7 industrialized economies (US, Canada, the UK, France, Germany, Italy, Japan), as well as the EU, and Australia. The cap is set to come under review every two months to remain at 5% below International Energy Agency benchmark.An EU embargo on seaborne Russian oil, incorporated into the seventh package of sanctions against Moscow on July 21, also kicked in.In line with the G7 plan, shipping and insurance companies are prohibited from providing services to Russia unless the latter agrees to sell its crude for $60 per barrel or less.However, a number of countries were officially spared the necessity of complying with the restrictions.Opinion & AnalysisWhy G7 Price Capping Won’t Harm Russia, But Will Accelerate Inflation & Recession in the WestYesterday, 18:16 GMT

Druzhba Pipeline Carve-Out

The new punitive restrictions on Russian oil do not apply to pipeline supplies of the crude. When the 27 member states of the EU negotiated the sixth package of sanctions against Moscow in June, negotiations over a gradual phasing-out of both crude barrels and refined oil products from the world’s second-largest oil exporter by the end of the year were exceedingly tense as Hungary advocated that oil supplies flowing through pipelines be granted a total exemption. Lacking access to the sea, the heavily reliant on Russian oil threesome of Hungary, the Czech Republic and Slovakia all raised concerns at the time. Thus, the EU-wide ban set in its crosshairs seaborne crude imports from Russia. Accordingly, Hungary, the Czech Republic and Slovakia will continue to receive oil through the Druzhba pipeline, operated by Russia’s state-controlled giant Transneft.Put into full operation in October 1964, Druzhba – one of the world’s biggest crude oil pipeline networks – extends for about 5500 km from its starting point in Almetyevsk in the Russian Federation, where it receives crude from pipelines in Siberia, the Urals and the Caspian Sea. The current capacity of Druzhba is 1.2 to 1.4 million barrels per day.The Czech Republic will receive oil from Russia via the southern branch of the Druzhba pipeline for another three years, Prime Minister Petr Fiala said in early December, adding:”However, from 2025, the supply of this strategic raw material will be provided via the Transalpine Pipeline (TAL), whose capacity will be significantly expanded”.© AFP 2022 / MAXIM MALINOVSKYA discharge valve of oil pipeline Druzhba is seen behind a fence at a village of Romanovka in Mozyr’s region of Belarus, 10 January 2007. A discharge valve of oil pipeline Druzhba is seen behind a fence at a village of Romanovka in Mozyr’s region of Belarus, 10 January 2007. A special temporary derogation until the end of 2024 was granted for Bulgaria “due to its specific geographical exposure,” allowing it to continue to import Russian crude oil and petroleum products via maritime transport.In addition, the European Union allowed Hungary, the Czech Republic, Slovakia and Bulgaria to purchase Russia’s seaborne crude without restrictions applying if supplies through the Druzhba network were suddenly interrupted.Petroleum products, unlike oil, are still allowed to be delivered to Europe (the ban will enter into force on February 5, 2023). Therefore, Croatia will continue to import vacuum gas oil from the Russian Federation, and the Czech Republic will continue to distill gasoline and diesel from Russian raw materials.© AFP 2022 / DENIS SINYAKOVA picture taken 30 September 2006 shows Sakhalin-2 liquefied natural gas plant under construction outside the settlement of Prigorodnoye, Russia’s far east Sakhalin island. A picture taken 30 September 2006 shows Sakhalin-2 liquefied natural gas plant under construction outside the settlement of Prigorodnoye, Russia’s far east Sakhalin island.

Sakhalin-2 Excluded

Japan has implemented a price cap on Russian crude oil at all fields, but opted to exclude the Sakhalin-2 oil project from the list. The requisite precondition is that the energy resource’s place of origin is confirmed, the Japanese Foreign Ministry said.”In terms of ensuring Japan’s energy security, the Sakhalin-2 oil is not subject to these regulatory measures. Thus, such operations as import, intermediary trade, transportation, customs clearance, insurance will be available for the Sakhalin-2 oil,” the ministry said.Importers will have to obtain a document confirming that the imported oil is actually produced at the Sakhalin-2 project, as import of Russian oil from any other field, including from the Sakhalin-1 project, at a price above the introduced cap will be prohibited.WorldJapan Excludes Sakhalin-2 Project From Russian Oil Price Cap List: Foreign MinistryYesterday, 11:04 GMT

Non-Russian Oil

As prior to the restrictions, Europeans can also continue to import non-Russian oil headed their way that transits through Russia or departs from Russia’s ports. Accordingly, Azerbaijani, Turkmen and Kazakh crude shipped from Russia’s Ust-Luga and Novorossiysk terminals is unaffected by the sanctions. The same seems likely to apply to Latvian so-called “blends” from Ventspils.Crude oil exported from Kazakhstan primarily moves via the Caspian Pipeline Consortium (CPC) system, with the oil reaching the Russian Black Sea port of Novorossiysk. Crude exports from Kazakhstan also utilize Russia’s Transneft pipeline system to reach Novorossiysk and the Russian Baltic Sea port of Ust Luga.From Azerbaijan, exports of crude are largely transported through the Turkish port of Ceyhan through the Baku-Tbilisi-Ceyhan (BTC) pipeline, but a part of the oil is exported via Russia, using the Baku-Novorossiysk pipeline. Azerbaijan has been pumping oil through the 1,330-kilometer pipeline since 1997.© RIA Novosti . Sergei Subbotin / Go to the mediabankTransneftTransneft / Go to the mediabank

India

India may continue to purchase Russia’s fuel at market value, including above the G7-imposed price cap mechanism, under the condition that it steers clear of Western insurance, finance and maritime services. According to India’s Oil Minister Hardeep Singh Puri, his country is not concerned about the introduction of new sanctions against Russia. When asked to comment on the impact that capping the cost of Russian oil would have on India, the official gave the curt reply, “None.”India, the world’s third-largest oil consumer, purchased 22 percent of its total imports from Russia in October. India will continue to purchase Russian oil as it ensures energy access to the population on the “most advantageous terms,” Indian Foreign Minister S. Jaishankar said during a joint press conference with his Russian counterpart Sergei Lavrov in Moscow in late November.IndiaIndia Will Keep Buying Russian Oil, FM Jaishankar Says Ahead of Yellen’s Visit to New Delhi8 November, 13:02 GMTAs for Russia’s reaction to the introduction of a price cap by the West, it underscored that the price of crude will change in its wake.”One thing is clear and undeniable: the adoption of these decisions is a step towards destabilizing global energy markets,” , Kremlin spokesman Dmitry Peskov said on December 5, when asked if Europeans and the world should prepare for higher prices. On Sunday, Russian Deputy Prime Minister Alexander Novak said that Russia was devising mechanisms to render Western price cap on its oil inapplicable. Russia has slammed what it considers to be an attempt to manipulate “the basic principles of free markets,” clarifying that it will “only sell oil and oil products to those countries which will work with us according to market conditions.”

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