The first results of the oil ceiling: does it work?

Alexey Belogoryev, Deputy Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Forbes on the validity of the Columbia University study conclusions on the revision of the “price ceiling” for Russian oil.

In the study, the inconsistency between the conducted economic analysis, which looks more or less adequate (adjusted for market opacity) and the purely political conclusions that are based on it, is surprising, the expert notes. “The text repeatedly and quite rightly emphasizes that the key role in increasing discounts on Russian oil was played not by the price ceiling, but by the EU embargo, which led to the need to look for new sales markets and significantly increased the length of transportation from the ports of the Baltic and Black Seas,” the analyst argues. “At the same time, the study does not provide a clear justification for the effectiveness of the price ceiling itself. On the contrary, the leitmotif is the idea that in its current form it almost does not work and that control and enforcement mechanisms need to be tightened - strictly speaking, this is precisely the main recommendation of the authors. Although why the authors believe that such a tightening will produce results is also unclear.”

The main "discovery" of this work, made, as the authors assure, on the basis of "unexpected and startling" primary customs data, is that the average price of Russian oil exceeded the quotations of price agencies, Belogoryev says.

“Why, knowing all this, do the authors call for a sharp reduction in the price ceiling? Given, although not substantiated, the level of $35 per barrel. If the ceiling does not work at a relatively high level, then what will make it more workable when lowered? - Belogoryev is perplexed. “The authors’ only argument is their purely speculative calculations of a reduction in Russia’s income from oil exports.”