The chimera of capping the price of Russian oil

It is sometimes difficult to understand the European position when talking about Russia. That the latter unreservedly condemns the Kremlin’s actions in Ukraine is more than expected. But at the same time, European leaders do not consider Europe’s energy situation. It is incomprehensible.

The European Union has approved a new set of sanctions against Russia, which includes a price cap on oil sales. This measure is hugely ineffective. The price cap plan has been the subject of significant efforts in recent weeks by U.S. Treasury officials and their G7 counterparts. The untested concept is based on the assumption that Russia needs energy revenues so much that it will have no choice but to comply with the terms of the cap. According to this line of thinking, stopping production could damage Russian fields.

Most Western oil experts disputed this theory, including some like Robert McNally, chairman of the consulting firm Rapidan Energy Group and former adviser to former President George W. Bush. According to the latter, Russia could reduce its oil production by up to 3 million barrels per day without damaging its infrastructure. Russian operators have become experts in the flexibility of their production, and rest fields could increase recoverable resources. Kevin Book, managing director of research firm ClearView Energy Partners, adds that even cutting output to $1.5 million would be enough to put immediate pressure on prices without producing the harmful effects expected by Westerners. Moreover, according to David Goldwyn, an independent consultant and former energy envoy at the State Department under President Obama, cutting production is not the only option for Russia. Other opportunities could drive up prices, including stopping crude exports via the Druzhba pipeline and the Caspian Pipeline Consortium.

This decision is even more challenging to understand in the context of the last OPEC+ meeting. The organization has decided to reduce oil production by two million barrels per day for November, the equivalent of 2% of the global output. Mohammed bin Salman, the Saudi crown prince, now prime minister in office, has chosen Vladimir Putin and an alignment with Russia. This comes in a few weeks of crucial midterm elections for the Biden administration. The entire policy in the Gulf of the Biden administration is being called into question. As a reminder, the U.S. President’s summer visit to Riyadh had yielded only meager results and had been described as “humiliating” for the United States.

Moreover, it will bring closer Putin’s influence on Russia’s two main customers, China and India. Recently, both countries seemed to be moving somewhat away from Russian oil deliveries. However, rising prices should bring them back closer to the Russian interest. 

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