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Page added on November 26, 2022
The West is struggling to set an oil price cap that hurts Russia
Allies of Ukraine want to put a price limit on Russian oil. But there’s a problem: They can’t agree on a number that would actually pile pressure on the Kremlin.
The West’s biggest economies agreed earlier this year to cap the price of Russia’s most valuable export and vowed to hash out the details by early December. The move is aimed at reducing inflows to President Vladimir Putin’s war chest without adding to stress on the global economy by further reducing the supply of energy.
But as the deadline approaches, countries are still haggling over where the cap should be set.
Media reports this week from a gathering of European diplomats indicated that Russian oil could be capped at between $65 and $70 per barrel. Yet this range is controversial, since it’s close to the current market price of Russian crude. That would mean limited disruption to supply, but also limited pain for Russia.
“At this price point, it’s about inflation reduction instead of Russian revenue reduction,” said Helima Croft, head of commodity strategy at RBC Capital Markets.
At the beginning of the month, a barrel of Russia’s Urals crude cost just over $70, about $24 below Brent, the international benchmark.
Setting the price lower, meanwhile, could exacerbate the global energy crisis — particularly if Russia retaliates. If it were to slash production by more than expected, it would drive up fuel prices just as countries like the United States, Germany and Japan are eager to get inflation under control.
Putin said Thursday that Western plans to introduce oil price caps would have “grave consequences” for energy markets.
Is the price right?
European Commission President Ursula Von der Leyen said Thursday that she was “confident that we will very soon approve a global price cap on Russian oil with the G7 and other major partners.” US President Joe Biden said oil price cap talks are “in play.”
But debate over the policy is dragging on, highlighting the complexity of the effort.
Countries want to reach an agreement ahead of December 5, when Europe’s embargo on Russian crude traveling by sea takes effect. That’s because the EU sanctions package also includes a ban on providing insurance and other services to ships carrying Russian crude.
This would make it harder for Russian customers like China and India to continue importing millions of barrels per day. Most insurers that cover crude transport are based in Europe or the United Kingdom, which is cooperating with Brussels.
The oil price cap aims to amend that policy. Shipping services and insurance could be provided to tankers transporting Russian oil — so long as it’s purchased at or below the price cap established by Western nations.
“This will help to further reduce Russia’s revenues, while keeping global energy markets stable through continued supplies,” the European Commission has explained. “It will thus also help address inflation and keep energy costs stable at a time when high costs — particularly elevated fuel prices — are a great concern.”
Yet actually setting a price has proved tricky. Poland and other eastern European countries want a lower cap, noting that it costs Russia much less than $65 to $70 to pump each barrel of oil. A cap between those prices would therefore allow Moscow to continue to reap profits from its crude sales.
The consultancy Rystad Energy estimates that the cost of production for Russia is between $20 a barrel and $50, depending on how the numbers are crunched.
Plus, Russia’s budget includes a forecast that oil will be exported at an average price of about $70 per barrel in 2023. If it can get that price in the market, it could continue spending mostly as planned.
Ukraine’s President Volodymyr Zelensky said Friday that the cap should be set at $30 instead.
“We hear about [proposals to set the cap per barrel at] $60 or $70. Such words sound more like a concession [to Russia],” he said via a video link at a conference in Lithuania.
If the price is too low, however, Russia could lash out and curtail its production. That could rattle markets, given that Russia’s 2022 exports stand at an estimated 9.7 million barrels per day, according to the International Energy Agency. That’s higher than in 2021.
Disruption inevitable
The price level isn’t the only issue at hand. Setting a static range for the price cap — as opposed to establishing a floating discount for Russian crude pegged to where Brent is trading — could pose logistical problems, since it would need to be frequently adjusted.
There’s also skepticism among oil traders that the measure can be enforced, according to Giovanni Staunovo, an analyst at UBS. He expects parties to transactions will simply hunt for loopholes.
“There is a strong desire to do something,” he said. “But reality will be different.”
Some analysts think the price cap will ultimately be less important than Europe’s oil embargo. The bloc has been buying about 2.4 million barrels per day of Russian crude, and Moscow will soon be forced to hunt for new customers.
To limit spare barrels, it’s likely to reduce output. That could push oil prices higher no matter what.
“Due to the EU oil embargo and the planned price cap on oil from Russia, oil production there is likely to be significantly curtailed,” Commerzbank said in a note to clients. “This should cause the price of Brent oil to rise in the coming weeks.”
7 Comments on "The West is struggling to set an oil price cap that hurts Russia"
makati1 on Sat, 26th Nov 2022 8:39 pm
Hahahahaha! Price cap? Russia produces oil for less than $30/bbl. They have customers all over the world that want it. At $60/bbl, they will still make a nice profit since they have been exporting eight million barrels per day this year (Statista). That is not going to change if there is a price cap. They will just sell to the other 7,000,000,000 people outside the dying West.
Do the math: $30/bbl net X 8,000,000 bbls/day X 365 days = $87,600,000,000./year. I think that they can keep the “war” going for a very long time. A lot longer than the debt black holes called the US and NATO.
Theedrich on Sun, 27th Nov 2022 2:22 am
The U.S. engineered the Ukraine invasion. Scott Miller, American ambassador to Switzerland, in an interview with Swiss TV station RTS (From https://www.rts.ch/info/suisse/13570600-lambassadeur-scott-miller-a-quoi-peuvent-servir-les-munitions-suisses.html):
In short, the U.S. forced Russia into a corner where it had no choice but to defend itself militarily. The foundation for the events was the Maidan-Putsch of 2014, orchestrated by the U.S., with Victoria Nuland as directing agent. With her as instrument, America overthrew a democratically elected government with much violence and bloodshed. In return, Russia took over Russian-populated Crimea as part of its own property. The Russian-speaking East (Lugansk and Donetzk) broke away and declared itself independent, whereupon Kiev began a genocidal war against its population. Later, in 2015, a treaty was agreed to in Minsk to freeze the situation, but America and its stooge vassals had no intention of honoring it, so the war continued.
Meanwhile TV comic Volodomyr Zelensky was elected Ukrainian president, and began turning Ukraine into a full-blown totalitarian dictatorship, arresting opposition parties and prohibiting the speaking of Russian. In preparation for the coming war it was about to generate, the U.S. began designing a mass of sanctions to shut down Russia. Russia warned against this, making clear that it would react militarily, which was exactly what Biden & Co. wanted. Shortly thereafter (2022 Feb 19) before a security conference in Munich and to the applause of high-ranking Western listeners, Zelensky demanded nuclear weapons so it could use them against Russia, which greatly alarmed Russia even more.
So on 2022 Feb 24, Putin announced the Special Military Operation against the Western operatives in Ukraine. And today Germany and Europe are on the verge of complete breakdown due to their own anti-Russian actions. Europe is DYING.
To this day, the vassal elites of Western Europe refuse to admit that the junta ruling the U.S. is a collection of megalomaniac, lying and corrupt deviants who believe they have a right to take over the planet.
𝖁𝖊𝖗𝖎𝖙𝖆𝖘 𝖑𝖎𝖇𝖊𝖗𝖆𝖇𝖎𝖙 𝖛𝖔𝖘.
makati1 on Sun, 27th Nov 2022 6:46 am
‘…the junta ruling the U.S. is a collection of megalomaniac, lying and corrupt deviants…’ 100% right on Theedrich!
Zeke Putnam on Sun, 27th Nov 2022 8:35 am
I figure “the ruling junta” is a good representation of the people electing them.
Hello on Sun, 27th Nov 2022 12:18 pm
>>>> And today Germany and Europe are on the verge of complete breakdown
I know, Vlad is such an idiot.
The west is importing wholesale niggers and ragheads. Not for long and the west would have self-eliminated. Vlad just needed to wait. But like a 5 year old in a candy store he couldn’t resist and started the biggest clusterfuck in recent history. Adolf’s army penetrated deep into russian territory. Vlad’s army can hardly make a dent in ukraine.
makati1 on Sun, 27th Nov 2022 4:04 pm
Hello, you really should do something about that USMSM brainwashing you continue to indulge in. Come out into the real world and regain your freedom.
Ukraine in no more than another country being destroyed by the US MIC, just like Syria, Libya, etc., for $$$/resources. If Russia was trying to take over Canada or Mexico, like the US is doing in the Ukraine, do you think the US would just sit by and watch? HELL NO! They would be bombed out of existence. Think Cuba.
Vlad is winning in the real world, as the West is going to find out when the ground freezes. If you don’t know history, you will not understand that Winter is a powerful Russian General. Ask Napoleon or Hitler.
cottager on Sat, 3rd Dec 2022 12:08 pm
I really wonder guys why are you so anti-western. You had hard childhood, misanthropes, whatever? I just want to write that sure, West is not ideal, but many countries in East/South is even worse, especially Russia is completely pile of shit from all directions, so you are strange a bit, don’t you feel?