The State of the Russian Oil Price Caps
At the G20 Meeting in February, U.S. Treasury Secretary Janet Yellen took a victory lap for the two rounds of oil price caps imposed on Russia since December last year. Yellen argued they had “sharply” reduced Moscow’s income while ensuring deep discounts for emerging markets. This assessment was echoed at last month’s CERAWeek conference by Torbjorn Tornqvist, CEO of Gunvor, the world’s 4th largest crude oil trading company. Counting himself among the initial sceptics, Tornqvist observed that “the cap is […] effective” with Russian “oil flowing but at a lower price.”
These appraisals have been bolstered by economic assessments coming out of Russia in recent weeks. Not only have last year’s warnings from wary sceptics – myself included – not yet materialised, the Kremlin’s previously resilient finances have come under great pressure. Last year’s massive export-fuelled budget surpluses have swiftly turned into steep deficits since December, with surging defence expenditure parallel to a plummeting energy income. Nevertheless, it is imperative not to grow overconfident. The hitherto smooth price cap rollout is no guarantee against volatility ahead, and a miscalculated escalation could still backfire, potentially worsening the cost-of-living crisis.
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