(Bloomberg) -- The Kremlin banned exports of Russian crude oil and refined products to foreign buyers that adhere to a price cap, but Moscow held back from the most drastic retaliatory measures that could have further disrupted global oil supplies. 

The restriction on Russian crude exports will begin on Feb. 1 and last until at least July 2023, according to the decree published Tuesday. The ban on oil products will start at a date to be determined by the Russian government, but not earlier than Feb. 1. 

The restriction applies to “supply contracts that directly or indirectly use the mechanism of setting a price cap,” the presidential decree said. “The ban is in force at all stages up until the final buyer.”

The general guidelines avoid extreme measures that the market feared would further upend trade, such as designating a minimum price for its crude or bans on specific countries from buying Russian oil. 

The market price for Russia’s flagship crude is already trading below the $60-a-barrel threshold set by the European Union and G-7, meaning most trade can proceed regardless of the restriction. The US and the European Union have already halted purchases, suggesting the decree’s initial impact may be limited in scope.

“The decree is too vague,” said Viktor Katona, an analyst at Kpler. And it “does not include any of Russia’s signaled countermeasures, like setting a minimal price differential.” It mostly serves as a framework document, he said.

President Vladimir Putin’s decree charges the government with preparing further legal acts to counteract the Western price cap.

Russia will watch developments in the global oil market in the first quarter of 2023 to see the impact of the price cap before deciding whether to take any further retaliatory measures, such as a price floor, people familiar with discussions said earlier this month.

Price-Cap Effects

The market has been waiting for Moscow’s response to the a $60-per-barrel cap since Dec. 5., when the Group of Seven industrialized nations’ limit on Russian seaborne crude exports came into force. 

The price cap means anyone wanting to access an array of vital western services, especially insurance, is now only able to do so if they pay $60 or less. The step was aimed at curtailing revenue the Kremlin is using to fund its attack on Ukraine and at the same time keep the crude flowing to the global market. The price level will be reviewed very two months.

The current threshold won’t cause losses for Russia’s economy, budget or energy industry as the nation is currently selling its crude at around similar levels, Putin said last week. That said, the nation’s flagship Urals grade is trading well below international benchmarks.

Still, Russia’s oil output may fall by 500,000-700,000 barrels a day early next year, equating to roughly 5%-6% of the nation’s current production, according to Deputy Prime Minister Alexander Novak.

“We’ll try to find some common ground with our counterparts to prevent such risks,” Novak said Friday. “But right now we’d rather take a risk of a production cut than stick to the policy of selling in line with the threshold.”

Russia’s daily output averaged 10.9 million barrels last month, the highest in eight months, according to industry data seen by Bloomberg. Russia’s full-year oil production this year will probably grow to 535 million tons, according to Novak. That’s equivalent to around 10.74 million barrels per day, based on a 7.33 barrel-per-ton ratio.

(Updates with analyst’s comment, decree details from the sixth paragraph)

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