Sanctions and caps will only increase the price of oil

According to Interfax, Russia will not export oil to the world market if price caps are imposed on Russian oil, Russian Deputy Prime Minister Alexander Novak told the Channel One television station.

“If these prices that are being discussed are below the cost of producing this oil, then, beyond any doubt, Russia certainly will not deliver this oil to the world markets. In other words, we simply will not operate at a loss,” Novak said.

Moscow will redirect deliveries to other countries instead, Elvira Nabiullina said

Russia will stop supplying countries that cap the price of its oil, the nation’s Central Bank head Elvira Nabiullina announced on Friday. Moscow has argued that a price ceiling would make oil more expensive and hurt Russian producers.

Nabiullina said that instead of complying with a price limit, Russia would redirect its supply to countries not imposing such a limit.

Seen by the US as a means of lowering global oil costs while simultaneously denying Russia revenue, the possibility of a price cap was agreed by the leaders of the G7 nations during their summit in June. Participating countries would deny shipping and insurance to Russian oil priced above a set rate.

The participation of only a small number of countries would have a global effect, as British and European companies currently insure 85-90% of seaborne Russian oil cargoes, according to figures from the Brookings Institution, a US think tank.

While no concrete price has yet been set, Japanese Prime Minister Fumio Kishida recently suggested that the upper threshold for a price cap would be set at around half the current market price for Russian oil.

Russia has warned that attempting to artificially cap oil prices would be counterproductive for the West. “There will be significantly less oil on the market, and its price will be much higher,” Security Council Deputy Chairman Dmitry Medvedev stated, predicting that the price cap, if it goes ahead, could drive the cost of a barrel of oil above $300-400.

Several countries, including China, India, and Indonesia have already dismissed the idea of not purchasing Russian oil. Energy experts in London believe that any attempt to unilaterally cap oil prices by the West would drive prices in the oil market to $140-$150 a barrel.

In promoting the plan, US Treasury Secretary Janet Yellen said that she believed that Russia would totally go along with the plan without enacting any counter measures. The Russians of course responded that such a viewpoint is unrealistic and is merely a pipe dream.