The United States and the European Union are currently debating whether or not countries should agree to a cap on the price of oil that will be paid for any Russian oil exports. The idea is that if there is a limit on how much countries pay for il the revenue that Russia needs to fund its was machine will decline and that more economic pain has the potential to push Russia into negotiating.
An argument has been made that Russia would support this because current sanctions that prohibit insurers from insuring ships carrying Russian oil would be lifted, but that only applies to ships transporting oil to the European Union. Ships transporting oil to other popular destinations (China, India, Turkey) can get insurance.
Conceptually, it is a good idea, but there are a few problems.
First, the current cap under discussion ($65-$70/barrel) will not reduce Russia’s revenue because it is currently trading at $52/barrel. The Ukraine has proposed capping it at $30-$40/barrel to solve this problem.
Second, Russia could retaliate by dramatically reducing production and exports, leading to massive prices increases that undermine Western economies (and subsequently reduce political support for the war.
Third, Saudi Arabia opposes the efforts because currently the price of oil is set globally, which gives Saudi Arabia leverage in the international oil markets. Setting a specific prices for Russia based on particular criteria could fracture this market.
Young, 11-1, 22, How Saudi Arabia Sees the World, https://www.foreignaffairs.com/saudi-arabia/how-saudi-arabia-sees-world?utm_medium=social&utm_campaign=ln_daily_soc&utm_source=linkedIn_posts, Foreign Affairs, KAREN E. YOUNG is Senior Research Scholar at the Center on Global Energy Policy at Columbia University.
From a business perspective, Russia’s invasion of Ukraine has given the Saudis more reason to keep up the partnership. Riyadh sees the West’s coordinated actions to control and suppress Russian energy imports, including a planned price cap on Russian oil, as a buyers’ cartel that threatens the Saudi economy. In the views of Saudi Arabia and other members of OPEC+, this cartel could eventually brand crude oil by point of origin, method of extraction, and degree of carbon intensity—and then price it accordingly. This practice would seriously undermine their control over global supply.
General
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