Capping the Price of Russia’s Oil Is a Risky Balancing Act
Wall Street JournalNov 25, 2022
The Facts
On Friday, the European Union agreed to a $60 per barrel cap on Russian oil after the final holdout, Poland, agreed to the proposal that was drawn up by the G7. EU nations will block insurance and shipping companies from transporting Russian oil to third-party countries if they are sold beyond the capped price.
The deal aims to limit Moscow's revenue from oil sales, which it uses to help finance the Ukraine war, while keeping global crude prices stable. The price cap is designed to allow Russia to continue to supply energy markets while deterring the Kremlin from recouping the full benefit of its sales.
The Spin
Anti-Russia narrative
This price cap is a step in the right direction, but sanctions should have been set at $30-40 per barrel for Russia to feel the maximum bite. $60 per barrel is a tick above Russian production costs, so the Kremlin should feel relieved it wasn't more.
Pro-Russia narrative
A so-called "cap" on Russian oil prices is an anti-market measure that destroys supply chains and can significantly complicate global energy markets. It's nothing less than a price dictatorship and Western vengeance. The repercussions of this proposal will be disastrous for everyone.
Cynical narrative
Regardless of the geopolitical intentions of the EU and G7, implementation of the price cap could be incredibly complicated to manage. The challenge for the EU and G7 is to make sure the price point is correct because if it's miscalculated, the consequences could be harmful to the entire world economy. All eyes will be on the implementation of this cap in the coming weeks and months.
Establishment-critical narrative
It's hypocritical to impose sanctions on Russia for invading Ukraine, but not on the US for invading Iraq for equally unjustified reasons, or on Israel for invading and annexing Arab lands.
