Price cap on Russian oil | “An ineffective idea”

The G7 countries want to quickly implement a cap on the price of Russian oil. And they want to rally as many countries as possible to weaken the income of Russia, which has been at war for more than six months against Ukraine. An ineffective idea, according to an expert.

Posted at 8:00 a.m.

Isabelle Masse
The Press

The G7 said on Friday that “the price cap is specifically designed to reduce Russia’s revenue and its ability to finance its war of aggression, while limiting the impact of Russia’s war on the world”. especially “low-income countries”.

Is it possible as agreement?

“Just like OPEC [Organisation des pays exportateurs de pétrole] is a cartel to limit oil production and drive up prices, it is possible to organize a “cartel of buyers” of oil to try to impose a price on Russian oil, explains Pierre-Olivier Pineau, holder of the HEC Montréal Energy Chair. It is quite possible to make such an agreement… but the difficulty is to enforce it. »

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Pierre-Olivier Pineau, holder of the energy management chair at HEC Montréal

It is all the more difficult since Russian oil is already selling at a price lower than the market price, because of the Western boycott. Russian oil flows to China and India, which turn to this Source because they can buy it cheaper.

Pierre-Olivier Pineau, holder of the energy management chair at HEC Montréal

Could the ceiling price be even cheaper?

“Maybe… and then everyone will want to buy Russian oil to benefit from the low price! replies Pierre-Olivier Pineau. It would be a bit paradoxical. The Russians indicate that they will refuse to sell to countries that participate in this ceiling price. If these are the same countries that are already boycotting Russian oil, this whole strategy will have no effect. The countries imposing the price cap already do not buy Russian oil, and the Russians would not sell it if the price cap were imposed. So it won’t change anything! »

Could China and India join the group, as desired?

“If enough [nouveaux] countries, like China and India, participate in the agreement, so it will have an impact on Russia, says Pierre-Olivier Pineau. Revenues could drop sharply. The lure of low prices could interest China and India… but at the cost of breaking diplomatic relations with Russia. It is unlikely that this will happen.

“In the long run, if a price cap came into effect for Russian oil, Russian production would decline, as it would be less profitable. The price of other oils would increase, since the world supply reduced by Russian production would face a similar demand. The exclusion of Russian oil, which has already pushed up prices, coupled with a decline in Russian production would drive up oil prices even further.

“So it’s a very lame approach, from a theoretical point of view, to solving a problem. Not to mention that in practice it would be difficult to put in place, and everyone would rush towards “cheap” Russian oil, to the point of being ready to pay for the right to buy it at this ceiling price. And a secondary market for the “right to buy” Russian oil would make it as expensive as any other. »

What would be a better solution?

“What is deplorable in all these discussions on oil is that we are not talking about the best way to reduce the price of oil: to reduce world consumption, laments Pierre-Olivier Pineau. If a great collective effort of energy efficiency, carpooling, public transport, telecommuting were put in place, not only would demand fall, but prices too. Several environmental issues would be resolved. Unfortunately, we do not seem ready to change our comfortable habits to defend democratic principles and peace or to solve environmental issues. »

The article is in French

Tags: Price cap Russian oil ineffective idea

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