Russia expects Western sanctions to have a significant impact on its oil products exports and therefore its production, but that will likely leave more crude oil to sell, a senior Russian source with detailed knowledge of the outlook told Reuters.

In what the West casts as unprecedented sanctions and President Vladimir Putin deems a declaration of economic war, the United States and its allies are trying to constrict the economy of Russia, the world's second-largest oil exporter after Saudi Arabia.

In an attempt to punish Russia for the conflict in Ukraine, the European Union banned seaborne Russian crude imports from Dec. 5 and will ban Russian oil products from Feb. 5.

"The oil products' embargo will have a greater impact than the restrictions on crude oil," said the senior Russian source who spoke on condition of anonymity due to the sensitivity the situation.

The source said the sanctions will lead to more crude oil supplies from Russia, which lacks storage capacity for oil products.

Crude oil is easier to export than products, which require smaller tankers and markets within closer proximity, while crude can sail to far-flung regions of Asia and America.

"We think that the refined product embargo may be more significant than the crude embargo, given that exporting a given amount of products is much more logistically complex than an equivalent amount of crude," said Ron Smith of Moscow-based brokerage BCS.

"Our assumption has been that the two embargoes combined would reduce Russian oil output and total exports by perhaps 1 MMbbl/d by the end of (first quarter) 2023."

The senior Russian source gave a median projection for the decline in refinery runs at 15% this year, in line with an official forecast.

In 2022, Russian oil products output grew by almost 3% to 272 million tonnes and is set to decline to 230 million tonnes this year, according to the official forecast.

Russia's energy ministry did not respond to a request for comment.

Capping Russian crude

Despite the Western oil embargo, unseen even during the crises of the Cold War, Russian oil production - concentrated in Western Siberia - has so far shown resilience with crude output rising in 2022.

The Group of Seven nations (G7), Australia and the 27 European Union countries also implemented on Dec. 5 a price cap of $60 per barrel on Russian crude, though Russian blends were trading below this level.

The G7 including the United States, Australia and the EU, are designing a similar price cap mechanism for Russia's refined fuels such as diesel, kerosene and fuel oil, from Feb. 5.

Putin has urged Russian oil producers to divert supplies away from Europe to other markets, such as Asia and Latin America.

His oil point man, Deputy Prime Minister Alexander Novak, said last week that the Russian oil producers had no difficulties in securing export deals despite the sanctions and price caps.

China and India have both stepped up their buying.

Novak said the main problem for Russian oil was a high discount to international benchmarks as well as rising freight costs.

The Russian source said Russia hoped to recover oil products exports starting from the second half of the year by setting up new logistics chains.

According to official forecasts, Russian oil production is set to fall to 490 million tonnes (9.8 MMbbl/d) in 2023 from 535 million tonnes in 2022.

Its oil products exports averaged around 1.2 MMbbl/d in 2022, according to the International Energy Agency.

The Vedomosti newspaper reported on Jan. 11, citing two sources familiar with ministry data, that Russia's oil production in the period from January 1 to 9 rose 0.1% versus December to about 10.9 MMbbl/d.

Vedomosti also said Russian oil exports had risen by 1.2% in early January, while refining volumes had increased by 1.4%.

Sources at four Russian large oil refineries have said there have been no changes yet to their production plans for February.

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