The Russian Oil Price Ceiling: Is a Compromise Possible?

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Forbes on a possible “compromise” decision regarding the level of marginal prices for Russian oil, initiated by the G7 countries and the EU.

“I do not rule out that a “palliative decision” will be made,” Alexey Gromov told Forbes. - The United States, together with its allies, will solemnly announce on December 5 the introduction of a price ceiling at a conditional level of $65 per barrel of Russian oil. Russia will defiantly refuse to accept this condition as absolutely non-market, but will sell its oil to key partners such as India and China at prices with a sanctioned discount, which will in fact be set at the level of the price ceiling”.

Thus, according to Gromov, Russia, without formally accepting the price ceiling, will sell its oil at a price close to $70 per barrel, at which it is currently traded on the world market.

“At the same time, our partners, Indians and Chinese, can always say: on the one hand, we did not join, did not support the US-European initiative to introduce a price ceiling, and on the other hand, we do not act in violation of this initiative, since the Russian discount is comparable to thus the notorious price ceiling,” the expert argues.

Despite the bellicose rhetoric of Western countries, the West is not at all interested in Russian oil leaving the market even more, creating a deficit that will be difficult to fill, Gromov notes. He recalled that OPEC + announced a reduction in production by 2 million barrels per day in November.

“Let the real reduction be not 2 million, but 900,000 barrels, it will still be a serious decrease,” the analyst says.

Gromov notes that one cannot count on other sources of a possible increase in oil supplies to the market either. Iran, he said, will not be able to supply additional volumes to the market. Western countries accuse Iran of military cooperation with Russia, thus, the likelihood of an Iranian nuclear deal, on which supplies depend, is close to zero under the current leadership of Iran. The oil industry in Venezuela, another country with significant oil reserves, is devastated, and even if export-restricting sanctions are lifted, Venezuela will not be able to seriously increase its production in the coming months. The United States, according to Alexey Gromov, also lacks the ability to significantly increase oil production, since companies producing shale oil lack investment.