Economy

Russian oil price cap, by any other name, is doomed to failure

24/7 Wall St. Staff

Published: June 29, 2022 11:04 am

By David Callaway, Callaway Climate Insights

Having failed to secure a ban on Russian oil in Europe, leaders of Western nations are now exploring the idea of a price cap on the profit for Vladimir Putin on the more than 2 million barrels he sells on to the continent each day. Like the earlier idea of a “buyer’s cartel,” proposed by Italy, the price cap is doomed to failure.

Putin has demonstrated he has plenty of alternative buyers for Russian oil in China, India and Pakistan. Even if the West installs the cap through a ban on oil shipping and carrier insurance out of London, Russia has its own insurance operation for those who want to pay.

What’s more dangerous is that a price cap raises the stakes in the European energy poker game playing out as blistering heat requires more energy on air conditioning and as the winter need for natural gas grows closer. Putin showed his power just last week when he temporarily slashed pipeline deliveries to Europe by 60%, sending prices soaring.

As Russia’s Ukraine invasion drags on, pressure on Putin and on the West to end it before winter becomes greater each day. Sanctions are not working quickly enough and as we’ve seen, a ban on Russian oil will hurt major parts of Europe more than Russia.

While the idea of a price cap, like any idea, is worth exploring, the loss to Russia of Western goods and services in the form of international business is where the real pressure points could develop on Putin. Global companies continue to abandon their Russian operations each day. Less business with Russia, not more, is the answer.

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Delighted to speak with @POTUS Joe Biden during the #G7Summit today in Elmau about the key actions to address turmoil in global oil & gas markets and how to ensure that the energy systems that emerge from today’s crisis are cleaner & more secure. pic.twitter.com/0PoJsVWjJg

— Fatih Birol (@fbirol) June 27, 2022

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