Russia Aims to Control Oil Pricing by Creating Own Benchmark

Russia’s government has made a plan to create a national oil benchmark next year, as it seeks to protect itself from efforts by the West to restrict the flow of petrodollars to the country.

Key ministries, domestic oil producers and the central bank plan to launch oil trading on a national platform in October, according to a document seen by Bloomberg News. Russia will work to attract foreign partners to buy oil, with the aim of achieving sufficient trading volumes to establish a pricing benchmark between March and July of 2023, according to the plan.

Russia has been trying to create its own oil benchmark for more than a decade, with little success. Some of the country’s producers have sold batches of crude for export at the Moscow-based Spimex commodity exchange, but the volumes traded haven’t been high enough to establish a globally accepted benchmark.

The nation’s ambitions have intensified after its invasion of Ukraine prompted a swathe of Western oil sanctions. Last month, Group of Seven nations agreed to urgently explore how to curb Moscow’s revenue by imposing a cap on the price of its oil.

Russia’s primary export grade of crude oil, called Urals, is typically bought and sold at a price expressed as a discount to North Sea benchmark Brent crude. Since the invasion, that discount has widened significantly as sanctions reduced the appeal of Urals. Russian crude averaged some $84 a barrel from June 15 to July 14, according to the Finance Ministry. That compares with an average Brent price of around $110 a barrel over the period.

Nevertheless, the broader rally in global prices has meant the flow of petrodollars into the Kremlin’s coffers has continued unabated.

Two Russian officials, who spoke on condition of anonymity, confirmed that work is ongoing on a national benchmark, saying the country seeks to ensure it can sell its oil without any external pressure or restrictions. The G-7 proposal only further proved the necessity of an independent Russian benchmark, said one official.

An executive at an Russian oil producer, who also spoke on a condition of anonymity as talks aren’t public yet, confirmed there have been discussions about a benchmark.

The proposal is still at its early stage and the governmental bodies have yet to determine whether the nation needs any additional legal frameworks for oil trading at the platform, according to the document. The Russian Energy Ministry didn’t respond to a Bloomberg request for a comment.