October 7, 2022

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Russian oil price range | “A useless idea”

G7 countries want to quickly control the price of Russian oil. And they want to mobilize as many countries as possible to weaken the leverage of Russia, which has been at war for more than six months against Ukraine. A useless idea, according to one expert.

Published at 8:00 am.

Isabelle Massey

Isabelle Massey
Pres

The G7 said on Friday that it was “specifically designed to reduce Russia’s revenue and ability to finance its war of aggression, while limiting the impact of Russia’s war on the world”. Especially “low income countries”.

Is this possible as an agreement?

“Like OPEC [Organisation des pays exportateurs de pétrole] A cartel to control oil production and drive up prices An oil “cartel of buyers” could organize to try to impose a price on Russian oil, explains HEC Montreal Energy Chair Pierre-Olivier Pineau. It is very possible to create such an agreement… but the difficulty is to implement it. »

Photo by Marco Campanosi, Press Archives

Pierre-Olivier Pineau holds the Energy Management Chair at HEC Montreal

This is especially difficult as Russian oil is already being sold below market value due to Western boycotts. Russian oil flows to China and India, which turn to this source because they can buy it cheaper.

Pierre-Olivier Pineau holds the Energy Management Chair at HEC Montreal

Can the ceiling price get any cheaper?

“Maybe… and then everyone will want to buy Russian oil to benefit from the low prices! Pierre-Olivier Pineau responds. It’s a bit paradoxical. The Russians indicate that they will refuse to sell to participating countries at this ceiling price. If these are the same countries that already boycott Russian oil, this whole strategy will have no effect. The countries imposing the price cap are not already buying Russian oil, and the Russians will not sell it if the price cap is imposed. So it doesn’t change anything! »

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Can China and India join the group as they wish?

“Enough [nouveaux] With countries like China and India participating in the deal, it will have an impact on Russia, says Pierre-Olivier Pinault. Income may drop sharply. The lure of low prices may interest China and India… but at the cost of severing diplomatic ties with Russia. This is unlikely to happen.

“In the long run, if a price cap on Russian oil goes into effect, Russian production will decrease because it will be less profitable. The price of other oils will increase as world supply reduced by Russian production will face similar demand. The exclusion of Russian oil, which has already raised prices, and a decline in Russian production will further increase oil prices. .

“So this is, from a theoretical point of view, a very lame approach to solving a problem. Not to mention that it is difficult to put into practice, and everyone will rush to “cheap” Russian oil to the point where they are willing to pay for the right to buy it at this ceiling price. The status quo is as expensive as any other. »

What would be a better solution?

“What’s unfortunate in all this discussion about oil is that we’re not talking about the best way to reduce oil prices: to reduce world consumption,” laments Pierre-Olivier Pinault. . Many environmental problems will be solved. Unfortunately, we are not ready to change our comfortable habits to protect democratic principles and peace or to solve environmental problems. »