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The decline of about $40 a barrel in Brent crude since June has been the biggest factor. Image Credit: AFP

Dubai: Russia said it will cut oil output by 500,000 barrels a day next month, following through on a threat to retaliate against western sanctions and sending oil prices sharply higher.

The output reduction, which is the equivalent of about 5 per cent of January output, has been hinted at repeatedly by the Kremlin since the European Union and G-7 began discussing capping the price of Russian exports. The move threatens renewed turmoil in an oil market that has otherwise taken in its stride the EU bans on most seaborne imports of Russian oil.

Crude prices jumped on the news, with Brent erasing earlier losses to rise as much as 2 per cent to $86.50 a barrel as of 8:50 am in London. Prior to this week, the international benchmark had dropped 9 per cent since mid-January, helping to ease inflationary concerns.

“Russia believes that the mechanism of price caps on Russian oil and petroleum products is an intervention in market relations and an extension of destructive energy policies of the collective West,” Deputy Prime Minister Alexander Novak said in a statement on Friday. His press service confirmed that crude output will be affected by the cuts.

Moscow’s move deepens the 2 million barrel-a-day supply curbs announced late last year by OPEC+. At a committee meeting earlier this month, ministers from the group saw no need to change their production limit, which lasts until the end of 2023.

Moscow’s oil revenue has taken a hit in recent months. The decline of about $40 a barrel in Brent crude since June has been the biggest factor. The discount at which Urals crude “- Russia’s main export grade “- trades to the international benchmark has also widened as the EU import ban and G-7 price cap forced the country to seek out new markets and alternative methods of shipment.