LONDON- Market forces would quickly undermine any scheme to impose a price cap on Russian oil, one of the architects of benchmark global oil prices said, even if the United States and the European Union can convince top Asian importers to take part.
Many countries have imposed sanctions on Russia following its invasion of Ukraine, which Moscow calls a “special military operation”.
The measures have failed in one of their prime aims: to reduce Russia’s massive revenues from natural resource exports, as international oil prices climbed to 14-year highs shortly after the invasion began on Feb. 24. They remain above $100 a barrel.
Western leaders have proposed addressing that through an oil price cap to limit how much refiners and traders can pay for Russian crude.
The history of similar attempts to limit the price suggests that a cap would lead to higher, not lower prices, and to the emergence of a grey market for Russian oil, said Jorge Montepeque, who is credited with reforming some of the most important benchmarks for pricing oil.
“All these mandates to fix prices have been tried before during high inflation,” Montepeque said.
“The US tried to fix prices for oil in the 1970s, the UK tried fixed forex prices in the 80s, Mexico tried fixed tortillas prices. And then – boom! – the market settles. It is a waste of time.”
U.S Treasury Secretary Janet Yellen is touring Asia to try to persuade more nations to join the cap scheme.
It is designed to prevent Russian President Vladimir Putin from generating more revenues for the war in Ukraine, while allowing Russian oil to flow to avoid a further price spikes and wider inflation.
Brazil, China, India and some African and Middle Eastern countries have refused to condemn the Russian invasion and have increased imports of Russian energy, which sells at deep discounts to global benchmarks because many European refiners have stopped buying Russian oil since the invasion.
