“The oil price cap is absolute anarchy” — RealnoeVremya.com
Economist and blogger Albert Bikbov thinks that the “price cap” on Russian oil that the G7 members agree on is nothing more than an instrument of psychological pressure on Russia. He shared this opinion during a live with Realnoe Vremya.
“It is an instrument of psychological pressure”
Here, this instrument can be interpreted ambiguously. It is primarily an instrument of psychological pressure because it is clear that Russia is not the only country to sell oil and that oil cannot be bought only from Russia. In other words, there is no market where the same Russia with its oil production can be cornered and the terms can be dictated. What is the problem? The problem is that it is an instrument of psychological pressure. How will this work? They are starting to push even now, although the G7 will be fully functioning when countries like India and China join. But the fact is that, firstly, our authorities immediately reacted harshly and [Dmitry] Medvedev did a good job, he said that right away. As in a joke – whoever receives a bundle of tickets will get aqueducts. They’ll take it, we’ll turn off the gas.
For starters, there are still a few times because they only claimed that but in reality it will only be around December 5 for oil and around February 5, 2023 for Russian petroleum products. The terms for the gas are the same, they are working it out now. But what is the problem? They say they are creating such a cap and hope that other countries buying oil from Russia will reach this cap. It doesn’t matter which country it is — China, India, Africa, some Asian countries where our freight traffic is now redirected. They think they are going to join this game right now because the country has been cornered – others can join the hunt and put pressure on Russia, precisely on Russian oil prices. This is why a ceiling is necessary. They set a tuning fork of 40 to 60 dollars a barrel and therefore want to punish the Russians.
The problem is that India and China, despite the enticing possibility of buying cheaper oil from Russia if they now join the price cap, they stand to lose oil and gas because Medvedev has made it clear that who will set the ceiling will not be supplied with oil. Russia will survive. There will be a severe shortage of currency, but our suppliers have already collapsed and currency is out of date, to put it mildly. We see it in the exchange rate and other things—imports have plunged colossally. Therefore, the pressure and demand for the currency is now low. If India and China do not receive hydrocarbons from us, they will not be able to replace everything with the volumes of other states.
Second, there is another serious power that can’t stand low prices – it’s Saudi Arabia and Middle Eastern countries that are outraged that some politicians are trying to influence their oil sales revenue. All of this is absolutely anarchic. Two to flinch – such a slight feint hoping ours will quiver or oil buyers will quiver who will be happy to pressure Russia with prices. But that won’t happen because the market is tight – no one will manage to replace Russian oil and gas, no matter how much they talk there. Winter, fall, I think this initiative will die on its own when the cold winter comes and they start using twice the oil and gas reserves. I think this whole initiative is only verbal, only a verbal attack.
‘This is happening amid pressure from the West to change our stance on Ukraine’
When trying to play the World State plan, set a state market price, you must have a monopoly of the market as a buyer or seller. One could then think of oligopoly. Unfortunately, even in the United States with the other G7 countries, they are not the main players in the oil market. While yes, America is an undisputed leader, we understand that, both in oil and gas. But anyway the problem is that the logistics, the transport, the technological difficulties impose costs. The world oil market has been created for decades and it is simply impossible to break everything overnight.
Now, Europe is hastily buying LNG from China — liquefied gas from Russia, and there’s a roundabout going around Africa — that’s a huge expense. How will they generally refuse everything? My only explanation is that it is purely psychological pressure, pressure in the hope that someone will buy it, India and China, for example. If they aren’t interested in Russian gas, they wouldn’t buy it now. And they doubled the purchases, sometimes even tripled. Our logistics are working at full capacity to redirect these flows to our new partners, countries that are friends of Russia, countries in a neutral position. And you are welcome to put pressure on Russia in this regard, which can easily turn off and not provide.
I even think that the same European — there are a lot of different mechanisms that can easily escape this cap. Yes, oil is sold for $40 a barrel and there is a price cap, so that’s fine. At the same time, there is a compensatory agreement where the difference from the market price goes to the seller, while some products can be sold or some services can be provided. Look what happens to the Latvian mix – now it’s a very popular operation. The oil seems to come from Latvia, it is clearly marked, but it does not say it is mixed with Russian oil, it is sold. Or the tankers meet in the ocean, change cargo and that’s it. In other words, there are many avoidance mechanisms.
Global oil traders are not fooled. They will invent a myriad of ways to escape this ceiling. I mean there will be cap agreements, while offset agreements will be signed at the same time, and in fact it will be the same trade with world prices, the case is that the difference will be a little different, in a little different offers. The history of even late oil trade capitalism has such examples. There was Marc Richi in the 80s, he is an American businessman who traded with Iran, Iraq, the American embargo was everywhere, he circumvented them, sold, manufactured mechanisms. Eventually he was kicked out of the country — he became a Swiss citizen. The global oil trade was born out of his company, that is, all the world’s major oil traders are his students or colleagues anyway.
In practice, this measurement is impossible. The only thing is that Western countries are trying to represent some pressure now. There is some verbal pressure, but those who understand the situation are laughing. It’s all about Western pressure to make us change our position on Ukraine. All these things are conditioned by the special military operation in Ukraine.
“The fridge will always win over television”
They are frantic that the unipolar world is over. They are frantic that there is not a single hegemony that can order any country or any people what to do, how to live. China has grown, it’s such a superpower, the second economy, if not the first. They are trying to tell China what to do with Taiwan. It is the outrage of Western elites over the loss of their monopoly position in the world order.
The unipolar world has collapsed. Now the world is multipolar. They cannot accept it. And these are convulsive attempts to dictate oil prices to be set. Although I want to note that OPEC, if you call a spade a spade, is an international agreement of the major oil exporters and has hardly managed this price policy in the oil market recently. The OPEC+ agreement signed almost 9 years ago has given very good results, prices have started to rise. But the problem is different – not even OPEC dictates this, but one of the main gas producers – the United States. He has decided that he can replace both OPEC and the world order in world market petroleum products. It’s hysteria because the unipolar world is over but they haven’t realized it yet, they haven’t accepted it.
Even selling oil at $40-60 a barrel they want will not destroy the oil industry because the cost of oil production in Russia is very low. Due to the first capital investments of the USSR, then really huge investments were made in the development of oil and gas fields. Now, economists calculate according to the maximum costs, it can even be seen in the reports — it’s about $4-5. So we can easily survive even if it will be 10 dollars a barrel, but that will not happen because there is less and less oil in the world. And thank you Greta Thunberg who should be erected as a monument in Russia for this “green hysteria”.
Because of this green energy transition, this green economy, they have brutally cut their investments, leading countries, producers who have followed this little girl with a poured reed pipe. They cut spending on exploration, on equipment, on capital – and now there is very little light oil in the world, there is almost none. You have to find money and invest, invest, invest to produce it. Thank you Greta Thunberg. Well done, she did well. Everything happened there because of an environmental psychosis. The role of hydrocarbons has been underestimated, their era is not over and it can only objectively come to an end if we find sources of energy that are cheaper than hydrocarbons. And we shouldn’t talk about wind power here – they sat idle in Germany all summer because the summer was not windy. Don’t talk about hydroelectric power stations in German rivers that have dried up and everyone is stepping on them. The era of hydrocarbons is not over yet. And all these Gretas and his supporters have ensured that if Russia leaves this market now, there will be a real collapse.
All European laymen sympathize with Ukraine to some externals in the grip of some propaganda, but the fridge will always win TV. And they will come out and ask why they need all this. All of this is leveling off, military aid in abnormal volumes. [President of Ukraine Volodymyr] Zelensky “does a good job”, he says, give us €7 a month, a Ukrainian’s dream is to sit down and receive all these benefits.
The economy of the countries plunged. Henceforth, Western partners must not follow the path of escalation, on the contrary, the path of de-escalation must be taken to survive not only the cold winter but also the beginning of the economic decline of the recession in America, to the closure of a large number of factories in Europe. They should be thinking about themselves, their soul, their salvation, their body’s salvation, people now, so they don’t get scared with the oil price cap. That’s what I was trying to say. You have to think of yourself.