Economic Statecraft
Price Threshold for Russian Oil: Anti- Market Barbarism and Chaos Risks
Valdai Club Conference Hall, Tsvetnoy boulevard 16/1, Moscow, Russia
List of speakers

On November 30, the Valdai Club hosted an expert discussion titled “Who Really Stumbles Over the ‘Price Threshold’ for Russian Oil?” Discussion moderator Ivan Timofeev, Programme director of the Valdai Discussion Club, called the oil price cap a new instrument of sanctions policy, at least in relation to Russia. The price threshold, in his opinion, has become a kind of intermediate option, allowing the West to stop short of demanding a moratorium on Russian oil trade, which would cause shocks in the markets. The question is how effective this measure will be and whether the West is able to drive Russian supplies into an artificial political corridor.

Konstantin Simonov, Director General of the National Energy Security Fund, and a Professor at the Financial University, considers the price cap not a sanctions mechanism, but a mechanism for fighting suppliers. “People who have been saying for decades that they are for markets are engaged in absolutely anti-market barbarism,” he said, adding that if this mechanism works, it can even be used without political pretexts. At the same time, the market itself does not believe in the immediate threat of destabilisation, and prices are not rising yet. Russia, in turn, believes in market values and expects to rely upon demand in other regions. Addressing the effect of the price threshold, the expert pointed out that instead of thinking about solving the problem of energy hunger, the initiating countries have created stresses for the global energy market and increased the risk of chaos.

Marcel Salikhov, President of the Institute of Energy and Finance, pointed to the failure in oil production in the spring, associated with the departure of large traders who refused to work with Russian oil. However, by the summer, production had recovered, and Western countries, realising that the embargo was not working, turned to the idea of​​a price cap. In the end, they decided to combine an embargo and a price cap, and countries that impose a price cap have already imposed an embargo, which complicates the implementation of the new mechanism. Salikhov emphasised that high threshold values ​​are being discussed, so its short-term effect will be insignificant. However, not only this effect is important, but also the emergence of some kind of infrastructure, which may have a long-term negative impact on the Russian oil industry going forward. The embargo, in turn, is likely to have a structural impact on next year’s performance, because the European market is difficult to replace, especially when it comes to oil products, but the reduction will not be critical.

Bijan Khajehpour, Managing Partner at Eurasian Nexus Partners, a consulting company, spoke about Iran’s experience in countering sanctions pressure. He noted that the sanctions have an effect, but they do not achieve their goals despite hitting the economy. In some cases, they pave the way for such negative phenomena as money laundering, which also affect the initiators of sanctions. The analyst believes that the price cap for Russian oil will face the same fate as other sanctions measures, and Russia will be able to find new markets, as more countries will ignore the sanctions, which are perceived as a manifestation of Western hypocrisy. Discussing the role of sanctions in the modern world, Khajehpour pointed out the danger of replacing diplomatic efforts with sanctions mechanisms. “Problems should be solved through diplomacy, not through sanctions,” he stressed.