Can the G7 cap Russ oil prices?

Investment Analysis Clubs Macro Economic Trends and Risks
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https://www.nytimes.com/2022/09/02/business/economy/g7-russi…

**Price Cap on Russian Oil Wins Backing of G7 Ministers**

**The proposal aims to stabilize unsettled energy markets in the wake of Russia’s invasion of Ukraine. But it faces considerable obstacles.**

**By Alan Rappeport and Jim Tankersley, The Wall Street Journal, Sept. 2, 2022**

**Top officials from the world’s leading advanced economies agreed on Friday to move ahead with a plan to cap the price of Russian oil, accelerating an ambitious effort to limit how much money Russia can earn from each barrel of crude it sells on the global market....**

**They would ban nearly all Russian oil imports to the European Union and block the insurance and financing of Russian oil shipments....U.S. administration officials have estimated that oil could soar to $200 a barrel or higher unless efforts to impose the price cap are successful....**

**Whether the price cap can work will hinge on a variety of factors, including securing agreement by all 27 E.U. member states and determining how the actual price would be set. Maritime insurers, which are critical to making the plan work, would also have to figure out how to comply in a way that allows them to continue insuring Russian oil cargo without running afoul of sanctions.**

**The industry, which would be responsible for making sure that oil buyers and sellers were honoring the price cap, has warned that insurers lack the capacity to police the transactions. Financial services in Europe undergird international energy shipments around the world, and fully blocking their ability to deal with Russian oil could disrupt exports globally, even to countries that have not adopted Russian oil embargoes....** [end quote]

I’m really confused. Can a “cartel of customers” really cap prices in a world where alternate customers are buying the product? Even though Russia’s oil exports and the way they are shipped around the world since crude is primarily transported on ships that rely heavily on insurance and other financial support from the West.

The price of oil is well down from its peak. Would it really soar to $200 per barrel without price controls?

Price controls usually don’t work. Producers simply cut off the supply if they don’t get their asking price. Is this cap actually cutting off the G7’s nose to spite their face?

Russia just said they won’t re-start the Nordstream 1 gas pipeline. That may be related to this oil price cap announcement.

I just don’t see how this would work in the favor of the G7 and against Russia. It doesn’t seem practical or workable.

Wendy

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I just don’t see how this would work in the favor of the G7 and against Russia. It doesn’t seem practical or workable.

where is russian oil going?
https://www.bloomberg.com/news/articles/2022-07-18/russia-s-…

Further, If prices caps were place on Russian Oil, Putin has the reserves to keep Russia stable for months and months without delivering a single barrel of oil. Then you would certainly see $200/bbl

https://www.bnnbloomberg.ca/putin-s-war-shows-west-must-clea…

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Wendy,

The real question is, if the cartel dictates $60 how will China or India explain to their own that they must pay $90? The insurance threat is real but the reality is that threat is only leverage to aid the Chinese and Indians in negotiations with Russia. Beyond that China can leverage Russia further. Russia is depending on trade in other avenues on China. Similarly for India. Russia refusing to sell for a possible $60 price would upset China. Maybe not in a public display but behind closed doors there is no explaining paying more. The Indian culture would have a public display of outrage. Both nations can not pay more just because Russia would simply like it.

Tuscson,

The Russians are cutting the Kremlin’s budget. The Russians need cashflow to tax. The oil workers need to be doing something to be taxed both the companies and the workers. If the Russians lean on just printing there will be a more immediate collapse of the entire economy. Hyper inflation will take over. Or the men at the front will come home immediately demanding at gun point their pay. The Russian economy is built on crap. It is already limping along not matter how some pundits are amazed it is it not on total life support.

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BTW

Check yourselves when the suggestion is to do the right thing. Doing the right thing generally works, the definition of demand side econ.

Check yourselves when worrying about it in the light of doing the wrong thing like letting Russia get off the hook on any damned thing at all. Doing the wrong thing does not work, the definition of supply side economics.

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Russia to Keep Nord Stream Pipeline Shut, Citing Mechanical Problems
www.wsj.com/articles/russia-to-keep-nord-stream-pipeline-shu…
Russia indefinitely suspended natural gas flows to Europe via a key pipeline hours after the Group of Seven agreed to an oil price cap for Russian crude—two opposing blows exchanged between Moscow and the West in an economic war running parallel to the military conflict in Ukraine.

Kremlin-controlled energy company Gazprom PJSC said late Friday it would suspend supplies of gas to Germany via the Nord Stream natural-gas pipeline until further notice, raising the pressure on Europe as governments race to avoid energy shortages this winter.

Gazprom said it had found a technical fault during maintenance of the pipeline, which connects Russia with Germany under the Baltic Sea. The company said the pipeline will remain shut down until the issue is fixed, without giving any timeline.

DB2

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Gazprom said it had found a technical fault during maintenance of the pipeline, which connects Russia with Germany under the Baltic Sea.

Gazprom never lies!

The company said the pipeline will remain shut down until the issue is fixed, without giving any timeline.

Which issue? The consequences of invading Ukraine?

The Captain

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Two things in this story stand out:

Gazprom said it had found a technical fault during maintenance of the pipeline, which connects Russia with Germany under the Baltic Sea: I’m guessing that this statement is to satisfy some contractual obligation requiring Gazprom to supply oil.

The other is the sub-rosa trans-shipping of Russian oil through China and India. Will the EU hold to their pricing for that oil as well? That’s been the major loophole in the sanction until now.

Additionally, there still has not been any attempt to limit the ability of Russia to sell gold. Idle minds wonder why not?

Jeff

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What’s up - is down.

What’s left - is right.

Those are the only certain things anymore.

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Those are the only certain things anymore.

Many of us are experienced enough to know up is down and down is up.

Russia is down and going further down the sewage pipe.

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"Many of us are experienced enough to know up is down and down is up. "

Cool. No worries then.

“Russia is down and going further down the sewage pipe.”

Woo Hoo, sis boom bah.

That will sure help things.

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Can a “cartel of customers” really cap prices in a world where alternate customers are buying the product?

It seems plausible in principle. Russia needs to sell oil. The West refuses to buy Russian oil, but all this does is raise global oil prices allowing Russia to more then compensate with higher priced sales to India and China. The West pays higher oil prices for no good reason.

Now the West will buy Russian oil, but only at a set price. China and India have a choice. They can continue to buy Russian oil at high prices (the status quo) allowing Russia to cut off the west, which will almost certainly lead to a global economic slowdown that will hurt export-dependent China and probably India as well. Or they can join the west and pay less for Russian oil.

Countries usually act in their economic self-interests. It is in the economic interests of Europe to stop Putin now rather than face a more devastating conflict later. It is in the economic interests of the rest of the world not to let the European economy tank because of high energy prices.

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Now the West will buy Russian oil, but only at a set price. China and India have a choice.

That is not what is happening. The west is not going to be buying much of the oil at all by December.

China and India will prefer the cartel’s pricing. There is no way for the Chinese and Indians to randomly support Russia’s whims for higher prices. There is no explaining internally to the Chinese and Indian consumers of the Russian oil that higher prices would be acceptable.

There is no mechanism in China or India to pay more than the price we set. There is plenty of greed in China and India to pay the Russians the lower price we set.

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If the Russians lean on just printing there will be a more immediate collapse of the entire economy.

Leap

Perhaps you did not see the Bloomberg link?
Globally, the volume of illicit funds in the financial system is worth up to US$2 trillion. A great percentage of this money especially flowing in through the UK is petro dollars of which Russia contributes and controls a vast amount of these funds, plenty to keep the Russian Economy stable without printing money or inflating the Ruble. (As an aside, the Ruble has increased in value since the sanctions.)
You may think that the UK has frozen Russian banking, but those accounts are barely the tip of the iceberg. Russian money that moves through another jurisdiction before arriving in Britain isn’t counted as Russian and the overwhelming majority of money that enters and leaves Russia does not have restrictions. Deutsche Bank itself was a significant culprit in spiriting money out of Russia without informing the authorities. Why do you think that Germany and the UK were slow to react to the Ukrainian Invasion? Russian Money.
Even if Putin only Reduced exports by 20%, Oil Prices would quickly increase to $160/bbl.

he Russians need cashflow to tax.

Russia doesn’t work like that. If the Kremlin wants money, they just take it; just ask Mikhail Khodorkovsky.

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