Russia cuts oil production in response to Western sanctions

Russia will cut oil production by 500,000 barrels a day next month, equivalent to about 5% of output, Deputy Prime Minister Aleksandr Novak on Friday proposed capping Russia’s oil prices.

“Today we sell the entire volume of our oil production. ‘ said Novak. according to on Russian state-run news platform Tass.

“In this regard, Russia will voluntarily cut production by 500,000 barrels per day in March, which will help restore market relations,” he continued.

Novak said the cut would only apply to oil, not gas condensate, and not from Russia’s quota under the current OPEC+ production deal set at 10.478 million bpd in November 2022. He emphasized that it is calculated “from the actual production level”. Tas reported.

Russia’s announcement sent oil prices skyrocketing ‘immediately after announcement’, Business Insider report“Brent crude temporarily rose 2.5% to $86.60 a barrel” before eventually stabilizing at $85.64 a barrel.

according to According to CNBC, OPEC+ producers will need to reach a consensus on output policy, and that consensus ties members to set goals. However, the group had previously allowed “a voluntary gesture respecting the spirit of existing production contracts”.

Russia is at maximum production capacity, recording about 10.9 million bpd in January, Wall Street Journal reportThis was slightly less than the 11 million bpd it produced in February 2022 when it launched its invasion of Ukraine.

Recent sanctions provoked Kremlin reaction

December 5, European Union (EU), Group of Seven (G7)— Canada, France, Germany, Italy, Japan, the United Kingdom, the United States — and Australia have agreed to a $60 per barrel price cap for Russian crude. Oil, unless sold for less than $60 a barrel, is report.

The sanctions came in response to the Ukrainian aggression and were intended to reduce Russia’s oil revenues while at the same time keeping Russian oil on the market and stabilizing prices, which is critical to the world’s oil supply.

President Vladimir Putin has previously called the move “ridiculous” and threatened some future retaliation if such a deal were to be imposed.

When Western nations first proposed a cap in September 2022, Putin said, “This is a totally ridiculous solution.” report.

“If decisions of a political nature are made … we simply do not comply with them,” he added.

After sanctions were imposed in December, Putin responded with a threat of his own.

“As for our reaction, we have already said that we will not sell to countries that make such decisions,” Putin said on December 9. according to “If necessary, we will also consider reducing production,” he added to Reuters.

The deal “plunged Moscow’s oil and gas revenues by as much as 50%,” reports Business Insider.

Then, on February 5, another escalation of sanctions came into force, including limiting Russia’s diesel cap to $100 a barrel and fuel oil to $45 a barrel. These arrived on the same day that the EU-imposed ban and price cap on Russian refined products came into effect. according to To The Wall Street Journal.

Simone Tagliapietra, a senior fellow at Brussels-based think tank Bruegel, said the move to cut Russia’s oil production was “an early sign of Russia’s attempt to weaponize its oil supply.” report.