Putting a price cap on Russian oil to reduce Vladimir Putin’s Ukraine war chest is a “ridiculous” idea that could backfire, according to an energy researcher.
The Biden administration has floated the idea of putting a price cap on Russian oil in recent weeks. Gal Luft of the Institute for the Analysis of Global Security warns that if the U.S. and European nations put a price cap of $40 to $60 a barrel on Russian oil, as they have discussed, Russia might reduce its oil production and create an artificial shortage in the market.
That would have the opposite desired result and possibly drive up the price of oil to $140 a barrel, Luft, co-director of the Washington think tank, tells CNBC.
“Those European and Americans that are talking about $40 a barrel—what they’re going to get is $140 a barrel,” Luft says. “That’s not how the oil market works. This is a very sophisticated market. You cannot force the prices down.
“You cannot trick the laws of supply and demand, and you cannot defy the laws of gravity when it comes to a fungible commodity,” continues Luft, also senior adviser to the United States Energy Security Council.
At the G20 summit last Thursday, U.S. Treasury Secretary Janet Yellen called a price cap on Russian oil “one of our most powerful tools” to combat inflation.
U.S. Deputy Treasury Secretary Wally Adeyemo embellished on Yellen’s remarks by saying that U.S. gasoline prices remain too high and that the Biden administration must do everything it can to bring them down—including promoting a price cap for Russian oil exports.
Adeyemo told CNBC he believes that other countries will be “very interested” in the price cap idea Yellen discussed with G20 finance chiefs because it would further bring down their costs for energy.
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