Keep supply well-oiled

In its ideal form, the US-led push by the G7 to impose a price cap on Russian oil exports would facilitate the flow of Russian crude to the market, keeping oil prices lower than under an embargo, while preventing Moscow from benefiting from price inflation caused by any real or feared reduction in Russian supply. Non-participating countries buying oil above the cap will be denied Western-dominated services including insurance, finance, brokering and shipping, including the International Group of Protection & Indemnity (P&I) Clubs that covers marine liability for over 90% of global oil shipping....

Let's assume that the allocation problem was somehow miraculously resolved. Why would current buyers, such as China and India, participate in a system that gives them a large discount of, say, 40%, for very limited volumes - as they are now competing with all the other buyers for non-sanctioned Russian oil - compared with the current discount of some 30% for as much oil as they want?

Of course, accepting a price cap would enable the buyers to freely obtain shipping, Western P&I insurance and other services. But a bird in the hand may be worth two in the bush. China and India could well require firm volume guarantees before accepting any such proposal.


And while the G7 might be tempted to give these, Russia may not cooperate. In fact, Moscow is very unlikely to cooperate as volatility and uncertainty work for it - resulting in higher prices and revenues.

From 'Russia Oil Price Cap: A Lesser Evil or Moral Hazard?', Energy Intelligence