The imposition of a price ceiling on Russian oil agreed by the G7 leaders in early September could lead to two consequences, and both of them would not bring any good to the architects of the policy because of significant shortcomings - Dan Eberhart, head of Canary Petroleum Services Company, wrote in an article published in Forbes magazine.
Eberhart said the G7 countries had found a "smart way" to keep Russian oil flowing into the markets but with prices controlled at lower levels.
"This plan is good in theory, but in reality, there are many potential risks. This happens because politicians cannot understand the movement mechanism of the energy market," the author emphasized.
Price restrictions will affect major Russian oil buyers such as China, India and to a lesser extent Turkey, while these countries will not sign a price limit plan. As Eberhart wrote, after Russia announced that it would not sell its oil to the countries participating in the plan, waiting for the support of the above countries "would not be wise".
In addition, Russia remains a permanent member of the OPEC+ group, which has been Fed by frequent Western intervention in the energy market. At the same time, OPEC+ has launched a "warning shot" towards Washington, announcing a slight cut in mining output in October and not excluding further cuts.
So what are the most likely consequences of price action? Given the lack of practical significance and the inability to ensure compliance, those limitations become just another risk in the context of the market not allowing it to do so - because in reality the world has little additional exploitation capacity," Eberhart warned.
According to him, the worst scenario for the situation for the West - which is "Russia's comprehensive retaliation" for the imposition of price ceilings could increase world crude oil prices by 150 USD/barrel.
"We cannot overestimate the dangerous impact of such a market move - especially when the administration of US President Joe Biden, as well as European and UK officials are showing a complete lack of understanding of work in the current energy crisis. And imposing a ceiling could also be a fatal blow to themselves" - the author summarized.
On September 2, the Finance Ministers of the G7 countries (UK, Germany, Italy, Canada, the US, France and Japan) confirmed their intention to impose price ceilings on Russian oil as part of expanding sanctions. According to the plan, the price ceiling will be issued on December 5 this year for oil and on February 5, 2023 for oil products.
The Russian representative responded with a warning that countries participating in the price ceiling plan will not be supplied with oil from Russia.
