US move to G7 summit: will oil price cap help?


Analyze

Status: 26.06.2022 04:19

Oil exports still bring billions in profits to Russia – despite Western sanctions. The US has proposed a price cap to limit revenues. Can it work?

Author: Andreas Braun, tagesschau.de

At the G7 summit in Schloss Elmau, the seven most important industrialized countries are likely to controversially discuss US Finance Minister Janet Yellen’s proposal: According to Yellen, the US and allied countries have already negotiated a price cap for Russian oil to limit the economic consequences of Ukraine’s war and reduce Russian oil export revenues. .

All major buyer countries would have to play their part

“The idea of ​​an upper price limit is basically a good thing, because it would bring Russia a lower income with the same volume of supplies,” says Alexander Sandkamp of the Kiel Institute for World Economy (IfW). tagesschau.de. “However, such a mechanism only works if it is supported by all major buyer countries. It would be not only the US and the EU, but also China, India or Indonesia. At the moment, it cannot be predicted that such an agreement will be reached.” “Such disagreement could help Russia direct more and more oil exports to these countries outside Europe and North America and even threaten to freeze supplies to the EU.

Eric Heymann, an economist at Deutsche Bank Research, also sees Yellen’s proposal as a key issue in implementing Russia’s maximum oil price: “How such a price cap can actually be introduced is still open at the moment.

Politicians have “difficulty understanding oil market”

For Giovanni Staunov, a commodity expert at the large Swiss bank UBS, the Yellen initiative even shows that politicians are desperately looking for solutions to reduce bubbling Russian oil revenues. “The idea of ​​a price cap in the US administration is not new. There are probably two camps in the US Treasury Department. The proposal for a price cap for Russian oil belongs more to a moderate camp, which also includes Secretary Yellen.” . ”

Staunovo sees a lack of unity in the international community in conversation tagesschau.de also as an obstacle to an effective price cap: “Large customers of Russian oil, such as China and India, are unlikely to meet these requirements. The question arises as to how the US and the G7 intend to persuade these countries to follow.

For example, South Africa has recently considered buying Russian oil, taking advantage of a massive reduction in the price of Russian oil compared to the world market – around $ 40 a barrel. “And the G7 countries have already stated that they want to do without Russian oil,” Staunovo said.

According to a UBS analyst, discussions about the oil price cap and many proposals in recent weeks show that politicians “are trying to understand the oil market. We probably have to be prepared for the fact that prices will remain high in general, and that applies to food as well as oil. “

Increasing the bid reduces the price

However, according to expert Heymann from Deutsche Bank Research, the world community still has the means to influence Russian oil revenues. tagesschau.dethrough market mechanisms: “In order to effectively reduce the price of oil, it would be important to monitor the supply side. If, for example, more oil is extracted, it dampens the price. At the same time, as a global community, you would look for hit Russia.

Production volumes in recent weeks in the USA, but also in OPEC production countries, are already showing such a slight increase in supply. “We anticipate a slowdown in the US economy next year as well, so according to our forecast, the price of oil should tend to fall anyway. However, by the end of the year we expect a price of around $ 110 per barrel for the two most important types, WTI and Brent.”

embargo or tariffs

If the US price cap initiative is not sufficiently enforceable internationally, the options already discussed will remain in place, says researcher IfW Sandkamp: “To reduce Russia’s revenue, a full oil embargo against Russia would not be imposed on the US alone. but also by the EU is certainly the most effective measure. ”However, some EU members are likely to vote against.

According to Sandkamp, ​​import duties would be the most sensible way to reduce Russian oil revenues. “This would initially lead to higher prices for consumers. However, customs revenues could be used to finance compensatory measures, such as energy money for financially weak households.”

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