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29 Dec, 2022 16:08

Oil price cap will backfire – economist

Countries that support the measure will have a difficult time trying to substitute lost Russian supplies, Mamdouh Salameh says
Oil price cap will backfire – economist

Western countries have failed in their attempts to stem the surge in global oil prices with a cap on Russian crude exports, Mamdouh Salameh, a prominent oil economist and World Bank energy consultant, told the Oilprice news outlet this week.

According to Salameh, none of the major oil-producing countries would agree to sell their crude at a price much lower than the market average, which would effectively deprive the West of oil supplies.

“The Western price cap on Russian oil exports has already failed and soon will be consigned to a waste bin… Neither OPEC+ countries nor Russia will agree to sell their oil at the cap price of $60 a barrel when the price in the market is above $85… Sellers can easily find buyers for their oil but Western countries can’t, and without oil their economies will come to a standstill. They will be the ultimate losers,” he said.

According to the economist, instead of achieving the supposed aim of lowering global oil prices, the cap mechanism has spurred their growth.

“The proof is that when the cap was launched on 5 December, Brent crude was $73 a barrel but since then it has risen to $85.43 today, a 17% rise,” he said.

Salameh also said that Russia’s economy is unlikely to be affected by the cap.

“Russia won’t lose. Its main buyers like China, India, Asian countries… have already ignored the price cap and are continuing to buy Russian crude in increasing volumes… Even if Russia sells 6 million barrels a day of crude oil at today’s Brent price of $85.43, it gets more revenue than selling 7 million barrels a day at $73. Therefore, Russia’s budget won’t lose a single penny. On the contrary… the Russian budget’s surplus could only expand,” he said.

The price cap on Russian seaborne oil exports was introduced by the EU, G7 countries, and Australia on December 5. It bans Western companies from providing insurance and other services to vessels transporting Russian oil unless the cargo is purchased at or below the set price.

In response to the measure, Russian President Vladimir Putin this week issued a decree prohibiting deliveries of Russian oil and oil products to countries that directly or indirectly mention the price cap in the contracts.

For more stories on economy & finance visit RT's business section

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