While Russia is about to announce its response to the oil price cap, earlier statements made by Moscow about refusing to sell crude to countries supporting this measure seem to point toward the prospects of rising oil prices.
The United States and several of its allies moved to introduce one of the latest punitive measures against Russia over the ongoing conflict in Ukraine on December 5 – a price cap on Russian oil.
The measure was adopted by the G7 countries, the European Union and Australia, and entails imposing a cap of $60 per barrel of Russian crude. The limit is slated to be reviewed periodically in order to constantly remain slightly below the bar set by the International Energy Agency.
News about the price cap elicited concerns from experts long before the measure came into play, with some pondering on the effect this restrictive measure may have on the oil markets.
But oil markets aside, how might this price cap affect the livelihoods of ordinary people in the countries whose leaders signed up to this initiative championed by the Biden administration and its cohorts?
How Russia Might Respond
The exact ramifications of the Russian oil price cap initiative remain to be seen as Moscow is yet to announce its response to this move.
Current reports suggest that Russia has three options on the table, with the first one being a full ban on all oil exports to any country that adheres by the price cap – the option that high-ranking Russian officials voiced on many occasions as the West was mulling the price cap move.
The other two options involve a ban on oil exports under contract including the price cap clause and the implementation of an indicative price that would define the maximum discount on Russian crude.
How Price Cap Might Affect Oil Markets
Several experts have already speculated that the price cap may indeed prompt Russia to make good of its promise to not sell oil to the countries which impose some kind of price ceiling on this commodity instead of buying it at the market price.
The prospects of Russia, the second-largest crude oil exporter in the world, reducing its oil production in response to the West’s punitive measures would likely push up oil prices, along with causing instability in the oil markets.
The German Commerzbank has suggested that the price of Brent crude might climb to $95 per barrel.
The situation is further exacerbated by the fact that the group of prominent oil exporting countries known as OPEC+ has already agreed to slash oil production by two million barrels per day until the end of the next year.
Last but not least, the decision made by the United States and its allies to impose a price cap on Russian oil appears to contradict the very principle of the free market – the principle that the countries which imposed the price cap claim to adhere to.
At this time, it remains to be seen what effect this development may have on the faith in the free market around the globe as the supposed champion of free market capitalism essentially moves to remove the “free” bit from the formula when it suits said champion’s interests.
How Price Cap Might Affect Ordinary People
While high oil prices may cause petroleum tycoons to pop champagne bottles as they watch their profits soar, many ordinary people might have to deal with less pleasant things like growing energy bills and rising consumer prices. More expensive oil means more expensive fuel (i.e. more expensive transport prices) and more expensive goods whose production involves oil.
Simply put, many people living in the countries which imposed the Russian oil price cap may now be facing the questionable privilege of spending more on goods and services so that their leadership could boast that they are sticking it to Moscow.
The restrictions the United States and its allies imposed on Russian oil imports prior to the price cap have already caused fuel and energy prices to soar in the US and Europe earlier this year, with the Biden administration even forced to tap into the country’s Strategic Petroleum Reserve to try and stabilize the situation.
Time will tell if the oil price cap measure will work as its architects apparently intended, but it does not seem like it will improve things for ordinary people living from paycheck to paycheck, to put it mildly.
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