Renat Muslimov: ‘Oil price ceiling will be hard for small companies of Tatarstan’
Russia's political will can break the ceiling for oil prices, as well as save small businesses that provide a fifth of Tatarstan's oil production
The EU countries, and together with them the Group of Seven (G7) and Australia agreed on the maximum cost of buying Russian oil at $60 per barrel. The price ceiling came into force this Monday, and with it the European embargo on the supply of crude oil from Russia by sea began to take effect. In response to these actions, the Kremlin said that Moscow would not accept such restrictions, even if it had to reduce production. Honourary oilman, consultant to the President of the Republic of Tatarstan, Renat Muslimov, told Realnoe Vremya how these sanctions will affect their initiators, and how they can threaten the oil industry of Tatarstan.
How sanctions were imposed
Russia has been the main supplier of oil to European countries for many years. For example, it covered about 20% of the demand for this energy raw material. However, as a result of the rupture of Russia's relations with Western countries against the background of the special military operation in Ukraine, oil exports have also come under sanctions.
In October of this year, the European Union decided to set maximum prices for Russian oil. As part of the eighth package of sanctions, a ceiling on crude oil prices has been introduced since December 5 of this year, and from February 5, 2023, restrictions will also apply to petroleum products. It is worth noting that back in early June, European countries announced a partial ban on sea shipments from Russia. For example, until recently, only some import transactions or execution of contracts concluded before June 4 were possible.
Back in September, Russian President Vladimir Putin said that Moscow would not supply oil or gas to the countries that would make political decisions that contradict the terms of contracts for the supply of these energy resources. In turn, Deputy Prime Minister Alexander Novak stressed that oil supplies to such countries will completely stop. Instead of these directions, the country will either reorient supplies to market-oriented partners, or reduce production.
Also after these statements, it became known that Russia is working on a decree that will prohibit Russian companies and traders buying Russian oil to the countries and companies that have introduced a price ceiling.
“This is absolutely not a market mechanism, and it will not work in any way”
What is the price ceiling and what threats it can pose?
According to the price ceiling, the West graciously allows us to sell oil at the prices that are lower than it. This is absolutely not a market mechanism, and it will not work in any way. Everything here now depends entirely on us. If Russia withstands, it will not sell this oil at low prices. This will lead to that oil prices will rise sharply to$ 100, and $150, and up to $200 per barrel. The market is the market, it will take its own. Here it is only necessary to withstand.
Naturally, production will fall, but I don't see anything terrible in this. Then it can be restored. And it's not such a complicated process. Russia can play the role of a regulator of these prices here. If it presses too hard, it will reduce production, and if prices go up, it will increase. In any case, market relations will come into conflict with the “wishlist” of the West. I think all countries are in the market formally or informally. Even US President Joe Biden at such a time, no matter how he tried to lower energy prices, failed to do so with such traditional American partners as Saudi Arabia and others. Now the situation has changed a lot, and they all adhere to market mechanism. We are all in the market, but they want to manage it.
According to Financial Times, this group of seven companies includes: China National Petroleum Corporation (China), Gazprom (Russia), National Iranian Oil Company (Iran), Petrobras (Brazil), PDVSA (Venezuela), Petronas (Malaysia), Saudi Aramco (Saudi Arabia) (ed.).
“Therefore, they will fight not with us. They will fight the market that they created themselves. That is, they will fight with themselves. And the hardest struggle is to fight with yourself. It was rare for any of people to succeed. I think this will be a problem for Russia for a while. And then normal market relations should prevail. Maybe not so normal, but the market is the market. This is not an administrative system command. There is no other way here," said Renat Muslimov.
“There must be political will”
According to the expert, Russia remains to withstand the onslaught from the West. To a greater extent, this applies not even to large enterprises, but to small and medium-sized businesses. As Muslimov noted, they also found themselves squeezed inside the country. For example, the tax maneuver conducted in 2019, aimed at strengthening domestic oil producers, is now working in the opposite direction, the oilman believes.
Will the price ceiling affect Tatarstan?
Oil price ceiling will be hard for small companies of Tatarstan. Here, the government has also played such a bad thing — in such a turbulent time, they conceived a tax maneuver. Naturally, taxes have increased. A number of companies already have no profit, and no one will work without it — it is objectively impossible. Therefore, this can have a very bad effect on small oil companies. I expected that the dollar would cost about 90 rubles. Yes, it fell a little, but it didn't solve anything. If it fell to at least 80 rubles, then these companies in this situation could live more or less normally. Now they will find themselves in a difficult situation. It's a big blow for them. They don't need to cut production, but just try to survive," Muslimov stressed.
The tax maneuver is a programme of gradual elimination of export duties on oil. In the course of it, the amount of the duty should decrease from 30% to 0 by 2024, and the tax on mining should increase (ed.).
This will not be such a serious problem for Tatneft. They have refining there, and so on. So it is dangerous for small and medium-sized businesses, which produce about 7 million tonnes of oil a year. It's a decent production. Tatneft may slightly reduce its production, but it will not be supercritical for them. There are already appeals from these companies. Maybe the government will make some decisions with this tax maneuver. They need to be supported for at least two years," the source said.
What kind of response can Russia give?
There can be one answer: not to sell at low prices. To withstand. There must be political will. We cannot continue to live without political will. Whether it's there, in Ukraine, whether it's in the industry as a whole. There must be political will in our life, and a strong one. And it will decide everything," Muslimov said.