Russia drafts decree banning oil sales to price-cap participants

The Kremlin is drafting a presidential decree that will ban Russian companies and any traders who buy the country’s oil from selling it to anyone participating in a price cap, according to a person familiar with the matter.

The decree will ban doing business with companies and countries that join the price cap mechanism, the person said, without providing a precise definition of how participation in such a mechanism would be defined, Bloomberg reports.

It would essentially ban any reference to a price cap in contracts for Russian crude or products and ban charges for countries adopting the restrictions, according to the person, who asked not to be named as the matter is not yet public.

The European Union is struggling to agree on how strict a price cap should be. Diplomats on Friday suspended talks over a proposed cap of about $65 a barrel, well above the current price of Russia’s main export crude. Disagreements over price levels persisted and talks were postponed to Monday.

It’s not clear how much impact a price cap or Kremlin decree in response would have on trade. Because the formal supporters of the measure are already refraining from buying Russian oil. The policy is actually aimed at other big consumers like India, who don’t have access to Western insurance and other shipping services if they pay more than the cap on Russian crude oil.

Russian President Vladimir Putin and several other officials have said on numerous occasions that the nation will not supply energy to those who subscribe to a price cap. Instead, the country will redirect its oil supply to “market-oriented partners” or reduce production, Deputy Prime Minister Alexander Novak said earlier this week.

India, Turkey, and other big buyers have not joined the cap. As of this writing, it looks like they have no problem continuing to buy Russian oil as the recent proposal has a cap so far above current market prices.

Meanwhile, Russia’s crude trades at $52, well below the proposed price cap.