By Dan Peleschuk and Herbert Villarraga

KYIV/BAKHMUT, Ukraine (Reuters) -Russia retaliated on Tuesday against a price cap on its oil imposed by Western countries, while its forces were involved in heavy fighting around the eastern Ukrainian city of Bakhmut.

Moscow will ban oil sales to countries that abide by the price cap that was imposed on Dec. 5, President Vladimir Putin decreed.

The price cap, unseen even in the times of the Cold War between the West and the Soviet Union, is aimed at crippling Moscow's military efforts in Ukraine - without upsetting markets by actually blocking Russian supply.

Under the cap, oil traders who want to retain access to Western financing for such crucial aspects of global shipping as insurance must promise not to pay above $60 per barrel for Russian seaborne oil. 

That is close to the current price for Russian oil, but far below the prices at which Russia was able to sell it for much of the past year, when windfall energy profits helped Moscow offset the impact of financial sanctions.The decree from Putin, published on a government portal and the Kremlin website, was presented as a direct response to "actions that are unfriendly and contradictory to international law by the United States and foreign states and international organisations joining them".The Kremlin ban would halt crude oil sales to countries participating in the price cap from Feb. 1-July 1, 2023. A separate ban on refined oil products such as gasoline and diesel would take effect on a date to be set by the government. Putin would have authority to overrule the measures in special cases. 

Russia is the world's second largest oil exporter after Saudi Arabia, and any actual disruption to its sales would have far-reaching consequences for global energy supplies.