The Economist — The West’s price cap on Russian oil

2022.11.30 edition

Okay, this one is kinda harder for me than the previous one ’cause the content is more complicated, covering Russia Invasion, worldwide geopolitics, oil price, etc.

In brief with America’s reaction to the invasion, they aim to maintain oil supply, while keep punishing Russia economically on their oil barrels. To accomplish this, they approved new oil crank-ups and released crude-oil stocks. However, OPEC declared an input cut in July, making America’s price stablization measures futile.

Though mentioning America, the highlight today is supprisingly not about them. Notice that the Economist posted two articles talking about the price cap (but of course there isn’t any relative discussion in Taiwan’s media).

So what is the “Price Cap”? The EU are going to set a “price cap” for buying the oil in oder to hurt Russia’s finances starting from December 5th, and also aim not to stir up the oil price. This is a revised action since Putin has announced strong counterattacks against the former one. Anyway, the West eager to do harm to Russia by buying their oil at a discount (Ofc depends on the price they set) and guarantee the basic oil supply simultaneously.

And how it works? The EU put restrictions on insuring, shipping or trading Russian crude oil to the world (since 95% of relevant companies are theirs). But we all know the oil price would spike if Russia refused to export oil. The EU therefore comes up with the idea setting a celling price so that Russia earn less while still supplying.

It looks clever to do so. Their are, however, three bottlenecks for them to post pressure on Russia by this price cap plan: a crunch in tankers, an insurance gap and a global shortage in risk appetite. The tankers are caused by the restaints EU put on countries not signing up to the cap, reducing the shipping capacity. Insurance coverage crunch since activities related to this field become more and more vulnerable, and therefore less companies are willing to offer insurance. As of the third bottleneck, lack of appetite, counties outside the G7 are loth to follow the West’s aproaches, and might thus try to avoid paying at the cap.

All these three factors are potential hindrance for the West’s intent. Moreover, the world oil market might face worse senario if Russia slashed its oil export, driving the price raged. Implementing this measure might post some harm to Russia, but at the same time give them power of negotiation.

It takes time for me understanding these two articles, cause I still have some issue with active reading in English. Sometimes I can’t believe how people learn so many languages within a short time because I put great efforts learning English but still couldn’t become an expert. I know that living in an entire-English environment would help but that is somehow really hard for a Taiwanese.