The horizon is not so far as we can see, but as far as we can imagine

The Delusional Dishonesty of the G7 Russian Oil Price Cap


Members of the G7 have agreed to impose a price cap on Russian oil in a bid to hit Moscow’s ability to finance the war in Ukraine.

Finance ministers said the cap on crude oil and petroleum products would also help reduce global energy prices. The cap will be set at a level based on a range of technical inputs.

“We will continue to stand with Ukraine for as long as it takes,” the G7 said.

Russia said it would stop selling oil to countries that imposed price caps.

Well, so the price cap is effectively a “we won’t buy it because you won’t sell it” policy.

There’s long been a delusion that commodities like oil are global. They operated almost as if they were for a while, but oil is produces in certain places, refined in certain places and shipped in specific pipelines, ships, trucks and trains. It has different qualities and not all refineries can handle all types of crude.

To the extent, however, that oil or natural gas or coal or whatever is subject to boycotts, it becomes less of a global market and that won’t generally decrease prices, rather the reverse, at least in the early phases of a breakdown of a global market. (In the late phase prices will diverge significantly in different countries, with extensive measures or realities in place to prevent arbitrage.)

So (2)…

UK Chancellor Nadhim Zahawi said the G7 were “united against this barbaric aggression”, adding the price cap would “curtail Putin’s capacity to fund his war”.

US Treasury Secretary Janet Yellen said a cap would also help fight inflation, which is on the rise in many of the world’s economies.

The price cap helps achieve “our dual goals of putting downward pressure on global energy prices while denying Putin revenue to fund his brutal war in Ukraine”, she said.

Sanctions have not reduced Russia’s income, they have increased it. This won’t be an exception because most of the world isn’t onside with sanctions, including India, China, virtually all of Africa and most of South America, but by fragmenting the market it will increase prices, especially in specific areas like Europe which need to get their hydrocarbons (remember, this is not a virtual good, it has to be extracted, refined and shipped), through specific infrastructure links.

The “price cap” is thus largely a symbolic measure, which will if anything increase prices somewhat. That’s not to say it’s useless, if the plan is a new long Cold War with Russia (and almost certainly China), getting off supplies from those two countries needs to be done and done in stages.

But it sure isn’t going to decrease prices or empty Putin’s treasury. In fact, in the short to middle term it’s likely to hurt Europe, again, far more than Russia.



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  1. Tallifer

    Perun has a good video about the wartime economic and political situation in Russia, the Ukraine, Europe and America. His topic is broad, but he does cite sources and examine data.

  2. Hickory

    Since March, the common question so many people ask over and over: how could those American/EU leaders think their strategy could possibly work? The only answer that makes sense to me is just so nonsensical it’s hard to fathom an empire could fall apart because of it: they still believe they have the amount of power they had 25 years ago, or thought they had. And the topmost are delusional, and their underlings too chickenshit to bring up the truth, or if so only very tacitly, like that general at the WEF (I think?) forum a few months ago; Kissinger was there too.

    Especially for a country that prides itself on capitalism and rationality, imposing price caps on a seller when you’re not in a monopsony position is just obviously dumb. These people could stay insanely wealthy and powerful for so many more years, and they’re throwing it away because they can’t be arsed to investigate their true strengths and weaknesses, and those of other countries.

    Wouldn’t be so sad if it wasn’t for nukes.

    Thanks for your writings Ian.

  3. Mark Level

    Well, how could anyone be surprised? A “senior adviser” to Bush (widely believed to be Karl Rove) spelled it all out nicely in 2004– “We are an empire now, & when we act, we create our own reality.” The US Ruling Class could not ever (at this late date) question that central assumption, nor will the poodle stenographers of the MSM. Our (mainly) European lackeys follow the same assumption and have their heads equally far up a hard to reach area of the human body where Solipsists enjoy hanging out. Of course the Russians (or “Putin”, since like Trump these clowns personalize everything) will bend to our sacred wishes, what choice do they have to do otherwise? Imho Barbara Tuchman was a pretty poor historian who got corrupted like many others by being too close to the sources of power and having her judgment clouded, however The March of Folly did make some salient points. I remember reading Evan S. Connell’s excellent essay on the 3 Children’s Crusades from Europe to “save” or conquer or charm (who knows) the Saracens into converting? The same entitled sense of connection to the Ultimate Reality of power exists now as surely as it did centuries ago. It’s going to end very, very badly & only a few of us even see the problem, the majority seems to indulge in magical thinking as long as possible. I’m looking forward to see if the urban Euro populaces all willingly starve or freeze to death this winter since their so brilliant leaders tell them we must defeat the dirty Slavic Bear forever. Well, I guess when the basis of your government is arrogance, hatred, exploitation and violence it never ends well.

  4. Trinity

    Well, they definitely have an interest in keeping oil prices down, so the economy can continue its blistering pace, while it toasts the Earth (do you prefer your earth rare, medium, or well done?)

    I still have this impression/fantasy that they all sit around, glad handing or high-fiving each other, because they believe they’ve “given it to them” so “they understand who is boss” and they can’t wait for the new revenue streams to begin. They haven’t yet realized that their Ivy League assistants now only tell them what they want to hear.

  5. Astrid

    I am struggling to understand why the Chinese or Russians still want to trade with the West at all. Why pollute your environment, take valuable commodities out of your ground, give your migrant workers carpel tunnel, etc., for dollars that can be taken from you at any point? Yes, they needed to play the industrialization game to get to their current stage, but now what’s the point of exporting actually valuable things to the West in return for Euros and Dollars backed by the “full faith and credit” of the West? Why would you sell your goods and services to a bully who just robbed Afghanistan and Russia in the last year?

    I sort of understand that the world economy has a massive momentum of its own and the Russians/Chinese don’t want to rock their boats too much at once, but what’s the point at which they’ll just take their ball and leave?

  6. someofparts

    I have heard that the demolition of a large structure should be arranged so that the building implodes, because that limits the damage to other structures in the area. If this country implodes in upon itself, it stops being able to undertake all the awful things we do globally.

    There would be no more money for all those military bases. Such nukes as we might launch in a pique would get shot down by other countries that have seen fit to invest in improving military technology (without the dead weight of corruption overhead). We wouldn’t be able to afford help to Israel, so I guess if they got pushed out of the Middle East all those Zionists would be moving back here. Best of all, we would have less to spend on undermining other governments insidiously with everything from propaganda to assassinations. What a break it would be for the rest of the world if we just imploded, and stopped being able to do all that awful stuff to everybody else, with as little damage to surrounding structures as possible.

    Domestically the masks are coming off. The conformity of opinion and lack of curiosity Astrid describes in her privileged peers sounds like what I see in my own privileged relations. I’ve suspected for a long time that the privileged are preparing to lie to themselves about it when they proceed to colonize our domestic population as harshly as they do with foreign populations.

    The wealth of what remains of the middle class here depends on exploiting labor elsewhere. If the countries where we used to get that underpaid workforce begin to prosper and stop letting us exploit their people then, in anticipation of this, our rulers are busy creating their own third-world workforce right here at home.

    No wonder they don’t see any need for us to have healthcare or education. We won’t need them in the future they are planning for us. Lack of healthcare is a way to cull the workforce. Anyone not young enough and healthy enough to be useful to the employers will just die off. Denying birth control to this population makes ugly sense, because death rates will skyrocket as poverty spreads and civilized social support fades, so the replacement birth rate will have to be high.

  7. different clue

    ” Why would Russia still want to trade with the West?” is a real question. Pretty soon now Russia will either be able to make everything it needs or buy it from the non-West, so Russia will not want to trade with the West at all in the fullness of time.

    Now . . . “Why would China still want to trade with the West?” Because China perceives that there is still some small trace of industrial production in the West that has not been all the way exterminated yet, and China wants to undersell its production into the West so as to exterminate every last trace of industry in the West.
    Once China has exterminated every last trace of industry in the West, then China will operate Europe as a cultural petting zoo for Chinese tourists, and China will operate AmeriCanada as a huge overseas Tibet, to be looted of every trace of natural resources which can be transported back to China, and to be filled up with hundreds of millions of Chinese settlers. That would explain why China still wants to trade with the West and wants to keep trading with the West until it has exterminated the West from separate economic existence through its Mercantilist Free Trade Colonial Aggression.

    Believe me now, or believe the future itself later when it gets here.

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