Russian Oil Price Controls: How They Would Work and What They Might Do

Justin Logan andPeter Van DorenTo avoid a  large increase in oil prices to European customers that would result from reduced supply, finance ministers from the G‑7 nations recentlyagreed in principle with U.S. Treasury Secretary Janet Yellen ’s plan to reduce Russian revenues from the sale of its oil. The plan would limit the price paid to Russia rather than ban the sale of Russian oil to the European Union, as is currently scheduled to take effect in early December. Price caps are aimed at keeping supply roughly constant while reduci ng Russian revenue.How would these price controls function? How will markets likely respond? And will throwing another log on the economic warfare fire work?The new plan relies on the current western quasi ‐​monopoly on oil tankerinsurance. Western insurers would be banned from offering tanker insurance for Russian crude shipments unless the price paid for the oil was below the price ‐​controlled amount. For now, non‐​western insurance substitutes, while they exist, could not realistically fill the void. This would serve to decrease Russian revenue from oil sales.Let ’s assume that this policy is implemented and insurance companies can verify the price paid to Russia even though insurance companiessay otherwise. How would energy markets react?For insight we canexamine the U.S. experience with oil price controls during the 1970s. Price ‐​controlled crude oil was not the marginal source of crude for U.S. refiners and refined...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs