Analysts are warning that a US-proposed idea being explored by the G7 to impose a price cap on Russian oil could backfire and have devastating consequences. A new report from JPMorgan Chase said that oil could shoot up to a “stratospheric” $380 per barrel if Russia responds to the price cap by reducing oil output.
“The most obvious and likely risk with a price cap is that Russia might choose not to participate and instead retaliate by reducing exports,” the JPMorgan analysts wrote. “It is likely that the government could retaliate by cutting output as a way to inflict pain on the West. The tightness of the global oil market is on Russia’s side.”
The analysts said that if Russia reduces oil output by 3 million barrels per day, it would bring prices up to $190 per barrel. In the worst-case scenario, Russia would slash production by 5 million barrels, bringing prices up to $380 per barrel.
The idea of the price cap would be to deny financing and insurance to ships transporting Russian oil if it’s not being sold at the set price. But the plan is doomed to fail as it relies on the cooperation of Moscow. China and India would also need to cooperate, but they have significantly stepped up their purchase of Russian oil and are already purchasing it at a discount, giving them little reason to cross Moscow.
Despite the serious risks, the Biden administration is still pushing the idea, and it appears to be gaining traction. Sources told Axios that Treasury Secretary Janet Yellen, who came up with the plan, has told her global counterparts that it’s the best way to avert a worldwide recession.
Last week, the G7 leaders released a joint statement that said they are considering banning the shipment of Russian oil “unless the oil is purchased at or below a price to be agreed in consultation with international partners.”
4 thoughts on “JPMorgan Warns Attempting Price Cap on Russian Oil Could Make Oil $380 Per Barrel”
This latest scheme, and everything else the government has done, has done nothing but drive up oil prices. Who benefits? 1) Russia, which helps keep the war going, and 2) oil companies, which helps keep the money flowing to politicians.
Presently, India benefits significantly from the purchase of Russian oil at discounted prices. It might be seen as a betrayal of Russia if India resold some of that discounted oil to “unfriendly countries”. To prevent that from happening, India has increased the cost of exported oil. This suggests that India intends to cooperate with Russia.
As long as Asia continues purchasing reasonable amounts of oil, European efforts to manipulate Russia’s profits and revenues will fail.
I don’t think India is in this just for the cost reduction. There is a chance to grow their economy and finally control their own affairs without outside interference. The longer the EU beat their chests in this confrontation with Russia, the stronger BRICS will become.
3 million barrels is an amount that Saudi can cover. Biden is seeking that now.
Of course, that means making current prices permanent. Biden seems fine with that.
I’m not. Most voters are not.
Bye bye Democrats, if they follow their Pied Piper into that morass.
The IEA estimates that the Saudis can bring perhaps 1.2 million bbl additional online within 90 days. Longer term? Perhaps 2.1 million.
I think it’s most likely that Russia really could trash the world economy – and make huge profits – by withholding oil.
Edit: Yup, unless they can generate massive turnout because of the SCOTUS ruling overturning Roe, the Dems are probably toast in the midterms.
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