It is an audacious plan, not even tried at the height of the 1973-4 oil embargo. On Friday, after months of discussions, the G7 countries agreed to introduce a price cap on Russian oil. Moscow, a member of Opec+, could now find itself confronted by a buyer’s cartel.
The US Treasury’s assistant secretary Ben Harris explained the goals as follows: the G7 countries will use their dominance over shipping and insurance to block Russian oil sales that do not abide by the price cap. Oil will flow, keeping world prices moderate, but the limit, set a little above Russia’s estimated production costs, will prevent it from realising substantial revenues. Or, more accurately, we should say “caps”, since there will be three: for crude oil, and low- and high-value refined products.
The G7 has not decided on the level of the price caps yet – average Russian crude production costs are around $35 per barrel. It will encourage non-G7 states to join in too, with the carrot of lower oil procurement costs, and the stick of measures against oil trading and transport.
So what happens now? If Russia outright refuses to sell to countries implementing the price cap, as it has threatened, then the price cap simply reduces to the ban on Russian oil already introduced by the US and UK and due to be implemented by the EU in December.
Then the effect depends on how much appetite and logistic ability there is from India, China and other Asian consumers to buy Russian oil, probably at a substantial discount. Middle East and Asian refiners can use Russian crude and sell the products back to Europe, watering down the impact of the cap while collecting attractive profits.
Or, Russia reluctantly continues selling, on the basis that, say, $35 per barrel is worse than the current world market level of $93 but better than $0, and India, though likely not China, joins in the price cap scheme to ensure a supply of cheaper oil.
In either case, the problem with the scheme is that it makes buying Russian oil hugely profitable. The lucky refiner who secures supply pays $35 per barrel and can sell the products to European or any other consumer at $93 per barrel plus the refining margin.
Zealous enforcement of the shipping, insurance and financing sanctions would create tensions between the West and Asian countries. As with Iranian and Venezuelan crude, traders will step in to disguise the origin of cargoes, swapping tankers on the high seas, or blending them with other crudes. Or, some countries and ship operators will chose to risk inadequate insurance, or find a way to provide their own. The potential profits are colossal: of the order of $130 million for a single tanker load, more than the cost to buy the ship itself.
So who gets the benefit of buying this very cheap Russian oil? The Kremlin can allocate it tactically, as Saddam Hussein did under the “oil for food” programme, to geopolitical allies, or as a bribe. The pro-Russian corruption that riddles Europe and the United States will worsen tenfold. Or, companies can pay the difference under the table, or via side-deals — agreeing say to take overpriced Russian metals or old tyres in return for an oil allotment.
The target is also odd — and surely dictated by political imperatives in the US. The energy crisis in Europe centres on gas and electricity, rather than oil. Brent crude oil prices, around $93 per barrel on Friday, are not particularly high by historical levels, and have fallen back significantly since their March high of $139 per barrel.
Moderately high oil prices should be countered in the course of the next couple of years by a rise in US output and growth in non-oil technologies, notably electric vehicles, which are a centrepiece of environmental policies both in Brussels and Washington.
Oil is a financial necessity for Mr Putin; gas is strategic. From the war’s start to June 3, Russia was estimated by Finland’s Centre for Research on Energy and Clean Air to have earned €59 billion ($58.7bn) from exporting oil, versus just €29bn for gas. Despite very high prices, gas earnings will have fallen further since then as export volumes to Europe have dwindled and Russia has no accessible alternative markets.
Coinciding with the price cap news, Gazprom announced it had shut down the Nord Stream I gas pipeline to Germany because of an oil leak on the final working compressor, and implied that sanctions prevent it from being repaired currently. This highlights that the real squeeze on Europe ahead of an ominous winter is on supplies of gas, not oil.
These factors make it all the less explicable why the price cap policy has come so far. There is a much better option: allow the rent from overpriced Russian oil to be captured by governments rather than shady intermediaries.
A stiff mandatory tariff on Russian imports — say, $60 per barrel — would achieve the same goal as the gap, and create a strong incentive for India and others to participate.
The same could be applied to Russian gas by Europe, since it has nowhere else to go, and would call Gazprom’s bluff.
The US Treasury Secretary Janet Yellen supported a tariff back in May, but apparently dropped the idea in favour of the price cap after European opposition. The EU’s problem is that pro-Kremlin Hungary would probably veto such trade measures, which require unanimous approval under the bloc’s rules. But this reinforces the impression, as with so much else about this conflict, that European power brokers have not tried hard enough.
Market structures can be changed. Market forces, by contrast, cannot be ignored. The US and EU have already squandered half a year blundering around the price cap idea, and still have not managed to define it. They now have a last chance to put forward an actual, workable scheme that harnesses the market instead of trying to hobble it.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis
'Tell the Machine Goodnight' by Katie Williams
Penguin Randomhouse
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Ferrari 12Cilindri specs
Engine: naturally aspirated 6.5-liter V12
Power: 819hp
Torque: 678Nm at 7,250rpm
Price: From Dh1,700,000
Available: Now
Padmaavat
Director: Sanjay Leela Bhansali
Starring: Ranveer Singh, Deepika Padukone, Shahid Kapoor, Jim Sarbh
3.5/5
Abu Dhabi race card
5pm Abu Dhabi Fillies Classic Prestige | Dh110,000 | 1,400m
5.30pm Abu Dhabi Colts Classic Prestige | Dh110,000 | 1,400m
6pm Abu Dhabi Championship Listed | Dh180,000 | 1,600m
6.30pm Maiden | Dh80,000 | 1,600m
7pm Wathba Stallions Cup Handicap | Dh80,000 | 1,400m
7.30pm Handicap (TB) |Dh100,000 | 2,400m
Sole survivors
- Cecelia Crocker was on board Northwest Airlines Flight 255 in 1987 when it crashed in Detroit, killing 154 people, including her parents and brother. The plane had hit a light pole on take off
- George Lamson Jr, from Minnesota, was on a Galaxy Airlines flight that crashed in Reno in 1985, killing 68 people. His entire seat was launched out of the plane
- Bahia Bakari, then 12, survived when a Yemenia Airways flight crashed near the Comoros in 2009, killing 152. She was found clinging to wreckage after floating in the ocean for 13 hours.
- Jim Polehinke was the co-pilot and sole survivor of a 2006 Comair flight that crashed in Lexington, Kentucky, killing 49.
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UAE currency: the story behind the money in your pockets
The biog
Hobby: Playing piano and drawing patterns
Best book: Awaken the Giant Within by Tony Robbins
Food of choice: Sushi
Favourite colour: Orange
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Three tips from La Perle's performers
1 The kind of water athletes drink is important. Gwilym Hooson, a 28-year-old British performer who is currently recovering from knee surgery, found that out when the company was still in Studio City, training for 12 hours a day. “The physio team was like: ‘Why is everyone getting cramps?’ And then they realised we had to add salt and sugar to the water,” he says.
2 A little chocolate is a good thing. “It’s emergency energy,” says Craig Paul Smith, La Perle’s head coach and former Cirque du Soleil performer, gesturing to an almost-empty open box of mini chocolate bars on his desk backstage.
3 Take chances, says Young, who has worked all over the world, including most recently at Dragone’s show in China. “Every time we go out of our comfort zone, we learn a lot about ourselves,” she says.
My Cat Yugoslavia by Pajtim Statovci
Pushkin Press
UAE currency: the story behind the money in your pockets
Killing of Qassem Suleimani
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now
WHEN TO GO:
September to November or March to May; this is when visitors are most likely to see what they’ve come for.
WHERE TO STAY:
Meghauli Serai, A Taj Safari - Chitwan National Park resort (tajhotels.com) is a one-hour drive from Bharatpur Airport with stays costing from Dh1,396 per night, including taxes and breakfast. Return airport transfers cost from Dh661.
HOW TO GET THERE:
Etihad Airways regularly flies from Abu Dhabi to Kathmandu from around Dh1,500 per person return, including taxes. Buddha Air (buddhaair.com) and Yeti Airlines (yetiairlines.com) fly from Kathmandu to Bharatpur several times a day from about Dh660 return and the flight takes just 20 minutes. Driving is possible but the roads are hilly which means it will take you five or six hours to travel 148 kilometres.
Benefits of first-time home buyers' scheme
- Priority access to new homes from participating developers
- Discounts on sales price of off-plan units
- Flexible payment plans from developers
- Mortgages with better interest rates, faster approval times and reduced fees
- DLD registration fee can be paid through banks or credit cards at zero interest rates
The five pillars of Islam
1. Fasting
2. Prayer
3. Hajj
4. Shahada
5. Zakat
Profile of Bitex UAE
Date of launch: November 2018
Founder: Monark Modi
Based: Business Bay, Dubai
Sector: Financial services
Size: Eight employees
Investors: Self-funded to date with $1m of personal savings
Mountain%20Boy
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UAE rugby in numbers
5 - Year sponsorship deal between Hesco and Jebel Ali Dragons
700 - Dubai Hurricanes had more than 700 playing members last season between their mini and youth, men's and women's teams
Dh600,000 - Dubai Exiles' budget for pitch and court hire next season, for their rugby, netball and cricket teams
Dh1.8m - Dubai Hurricanes' overall budget for next season
Dh2.8m - Dubai Exiles’ overall budget for next season
Living in...
This article is part of a guide on where to live in the UAE. Our reporters will profile some of the country’s most desirable districts, provide an estimate of rental prices and introduce you to some of the residents who call each area home.
Key facilities
- Olympic-size swimming pool with a split bulkhead for multi-use configurations, including water polo and 50m/25m training lanes
- Premier League-standard football pitch
- 400m Olympic running track
- NBA-spec basketball court with auditorium
- 600-seat auditorium
- Spaces for historical and cultural exploration
- An elevated football field that doubles as a helipad
- Specialist robotics and science laboratories
- AR and VR-enabled learning centres
- Disruption Lab and Research Centre for developing entrepreneurial skills
The specs
Engine: Four electric motors, one at each wheel
Power: 579hp
Torque: 859Nm
Transmission: Single-speed automatic
Price: From Dh825,900
On sale: Now
Sri Lanka-India Test series schedule
- 1st Test India won by 304 runs at Galle
- 2nd Test India won by innings and 53 runs at Colombo
- 3rd Test August 12-16 at Pallekele
Our legal advisor
Rasmi Ragy is a senior counsel at Charles Russell Speechlys, a law firm headquartered in London with offices in Europe, the Middle East and Hong Kong.
Experience: Prosecutor in Egypt with more than 40 years experience across the GCC.
Education: Ain Shams University, Egypt, in 1978.
The specs
Engine: Direct injection 4-cylinder 1.4-litre
Power: 150hp
Torque: 250Nm
Price: From Dh139,000
On sale: Now
From Zero
Artist: Linkin Park
Label: Warner Records
Number of tracks: 11
Rating: 4/5
Match info
Manchester United 4
(Pogba 5', 33', Rashford 45', Lukaku 72')
Bournemouth 1
(Ake 45 2')
Red card: Eric Bailly (Manchester United)
