Western governments have struggled with the challenge of reducing Russia’s oil-export revenues, because the impact of their boycotts is offset by higher prices and purchases elsewhere. By establishing a buyers’ cartel to impose a price cap on Russian crude, the West could achieve its goal with the support of oil importers everywhere.
STOCKHOLM – The Western sanctions on Russia over its aggression against Ukraine are growing tighter. The biggest outstanding concern is how to cut Russia’s oil revenues, which may now account for over half of its export revenues. The best method is a price cap for oil, which is already being implemented – though not by Western countries.
The initial idea was that the West would stop importing Russian oil. But because Russia accounts for roughly 11% of global oil production, Western attempts to reduce oil imports from Russia led to sharp price hikes on the world market, allowing Russia to earn more from its oil exports, while delivering smaller volumes.
Some countries, notably India, China, and Turkey, have increased their oil imports from Russia. But they have not necessarily helped Russia much, because they have bought this oil at a large discount. At the beginning of 2022, Russia’s Urals crude was sold at a minor discount of $1-2 per barrel, relative to the European Brent standard. Since April, however, this discount has hovered between $31-36 per barrel. On August 3, the Urals crude oil price was $76 per barrel.
To continue reading, register now.
As a registered user, you can enjoy more PS content every month – for free.
Register
Subscribe now for unlimited access to everything PS has to offer.
Already have an account? Log in
PS Events: Forsaken Futures
Join us on September 14 for our next virtual event, Forsaken Futures, to hear leading global experts discuss how to leverage public policy, finance, and technology to mitigate the dangers of a hotter world.
REGISTER NOW
Writing for PS since 1995
71 Commentaries
Anders Åslund, a senior fellow at the Stockholm Free World Forum, is the author of Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy (Yale University Press, 2019).
Before posting a comment, please confirm your account. To receive another confirmation email, please click here.
Agree with the article. One additional effect of the price cap is that it has the potential to destabilize OPEC. Russia has the incentive to increase production at the expense of other OPEC members in order to maintain the same revenue. This means that Russia may be competing with its own allies, like Iran, for the same outlets. A second benefit. Finally, imposing price caps now with allies also increases buy-side coordination for future excessive price increases by OPEC. Consider this: countries which have reduced their strategic reserves have space to accept additional crude output from those countries it deems as their friends. Every seller needs a customer, and some customers are more valuable than others.
Why would Russia not just stop delivering if West wants lower price?
Import tariffs make imported goods' prices higher, not lower. As for being the "standard" procedure, anti-dumping (AD) measures is not a good example here. AD measures were never imposed before on imports of crude oil and normally are imposed on imports of semi-finished to finished industrial goods. Moreover, AD instrument is extremely cumbersome and far from "swift" – it takes between 15 and 20 months from the moment of taking a decision to initiate AD investigation to actual imposition of AD duties, hardly a swift tool in the current circumstances.
It appears that you have not yet updated your first and last name. If you would like to update your name, please do so here.
After posting your comment, you’ll have a ten-minute window to make any edits. Please note that we moderate comments to ensure the conversation remains topically relevant. We appreciate well-informed comments and welcome your criticism and insight. Please be civil and avoid name-calling and ad hominem remarks.
For centuries, the negative relationship between resource abundance and growth has been at the root of global economic injustice. Overcoming the colonial era’s division of the world into developed and developing economies is perhaps the most important challenge in the race to save the planet and achieve sustainable development for all.
Russia’s shutdown of its main gas pipeline to Europe has further darkened the eurozone’s already-gloomy economic outlook. With inflation soaring, a recession appearing increasingly likely, and financing conditions beginning to diverge, we asked PS commentators just how much danger the European economy is in.
Support Project Syndicate
Subscribe Upgrade Donate
Please log in or register to continue. Registration is free and requires only your email address.
required
required
Please enter your email address and click on the reset-password button. If your email exists in our system, we’ll send you an email with a link to reset your password. Please note that the link will expire twenty-four hours after the email is sent. If you can’t find this email, please check your spam folder.
required
By proceeding, you are agreeing to our Terms and Conditions.
Sign in with
Facebook
Microsoft
Twitter
To receive email updates regarding this {entity_type}, please enter your email below.
If you are not already registered, this will create a PS account for you. You should receive an activation email shortly.