US Plan to Cap Russian Oil Price Draws More Skepticism

 

Attempting to enforce the price cap could send oil prices skyrocketing

by Dave DeCamp 

Posted onAugust 3, 2022CategoriesNewsTagsRussia

Treasury Secretary Janet Yellen is still pushing an idea to put a price cap on Russian oil even as it draws more skepticism and warnings that the plan won’t work.

The idea of Yellen’s plan would be to deny financing and insurance on shipments of Russian oil if it’s not being sold at a set price that would limit Moscow’s profits. The New York Times reported on Wednesday that shipping insurers don’t think the plan is enforceable.

Mike Salthouse, the global claims director for a leading global shipping insurer, The North of England P&I Association Limited, said the plan won’t work. “We can ask to see evidence of the price paid, but as an enforcement mechanism, it’s not very effective,” Salthouse said, according to the Times.

“If you have sophisticated state actors wanting to deceive people, it’s very easy to do,” he said. “We’ve said it won’t work. We’ve explained to everybody why.”

Yellen is pushing the price cap over fears that EU sanctions set to take place by the end of the year will send oil prices even higher than they are now. Under the sanctions, the EU will ban the import of Russian oil, with an exemption for Hungary, and European insurers would stop insuring shipments of the commodity.

Russia relies on insurance from the EU and Britain for its oil shipments. There are alternatives, but at least initially, the EU sanctions could slow down the movement of Russian oil enough to cause a significant spike in global prices.

Some analysts think that even if the price cap is successfully implemented, companies will still be extra cautious and avoid doing business involving Russian oil over the fear of being hit with sanctions.

The irony of Yellen’s predicament is that the US pressured the EU to ban and sanction Russian oil, but now it’s clear those measures will backfire on the West.

Besides the issue of enforcement, the price cap plan is doomed to fail because it requires the cooperation of Moscow. A Russian central bank official said Russia would likely respond by not supplying oil to countries that require the cap and could cut production, which could send prices skyrocketing.

Last month, analysts at JPMorgan Chase warned that if Russia responds by cutting oil production, in the worst-case scenario, oil prices could soar to $380 per barrel.

https://news.antiwar.com/2022/08/03/us-plan-to-cap-russian-oil-price-draws-more-skepticism/