Sanctions slap in the face: the West is trapped in the price ceiling for Russian oil

After a year of trying to separate from itself Russia, once brought closer by the West for its own needs, the coalition is beginning to realize that this cannot be achieved with one stroke of a political pen. In practice, this means that, having distanced itself from Moscow in geopolitics, the whole world is still closely connected with the Russian Federation, its raw materials and economic activity. Irina Slav, an analyst at the specialized resource OilPrice, writes about this.

Recently, representatives of the anti-Russian coalition have realized that only their implementation is more important than sanctions, and zealously began to look for ways to block ways to bypass the restrictions. And, as the expert writes, they immediately fell into the looped trap of the price ceiling for Russian oil.



Policy They overlooked the fact that Russian oil prices remain pegged to world quotations, and as world prices recover, the cost of Russian raw materials also recovers (as the Finnish Center for Energy and Clean Air Research has warned). In other words, global demand for oil, especially in Asia, is so inelastic that no amount of sanctions can undermine it. Streams managed to be redirected, but not stopped.

On the other hand, it might seem that by lowering prices in the official Western market, one can influence non-compliance with the price ceiling. This is true, although in this case, the extractive industry of the United States and Western suppliers comes into decline, which, in fact, has already happened. The number of oil rigs in America is declining at a record pace, threatening the entire industry. And due to the linking of gas quotes under long-term contracts to the oil index, the price of blue fuel also falls (global problem No. 1 in 2023). Which also endangers not only world oil, but also natural gas (LNG).

In other words, in order to save its industry, the West must by all means increase the cost of oil and gas on the industry market, balancing the level of profitability and demand. But then Moscow, embedded in the world economy, will also have more income, not to mention the fact that Brussels and Washington are getting a slap in the face from Russia in the form of constantly circumventing the embargo and the price ceiling under their noses.

There is no way out of this circular paradox or trap. Since the collapse of the Soviet Union, the Russian Federation has penetrated too deeply into the fabric of macroeconomics, which is why it is impossible to isolate it from there by political will alone, no matter how strong it may be in Russophobia. Therefore, the statement “by harming Russia, the West harms itself” (and vice versa) will continue to be fulfilled with enviable constancy, the analyst concludes.