Under what conditions can energy price restrictions work?

Marcel Salikhov, President of the Institute for Energy and Finance, commented to Moskovskaya Gazeta about Russia's possible reaction to the introduction of marginal export prices for Russian oil.

“Russia most likely will not agree to cap prices or export duties and will continue to look for new markets for energy products,” Marcel Salikhov told Moskovskaya Gazeta. “For Western countries, the measures now being discussed are economically beneficial, but on this issue, political arguments are stronger for both sides, and Russia has successfully redirected exports to the East.”

According to the expert, judging by observations over the past month, Russian oil exports have not suffered much, world prices have risen, and the cost of supplies has also grown. The embargo has shown its ineffectiveness, so Europe is considering different options for further action. One of them is the supply of Russian energy resources at a price not higher than a fixed one. Another option, which is also being discussed, is to introduce a special duty that will be paid by the exporter. For example, a duty of 20%: our oil company pays it, and the European country receives additional income. Now Russian oil is sold at a 25-30% discount, and this margin is taken by traders and refiners. It is, of course, more profitable for Europeans to take the difference for themselves and compensate increaseing oil prices for the European economy. Financially, such an instrument would be more effective for them than an embargo.

However, as Marcel Salikhov noted, there are two points that complicate the situation for Europe: “Firstly, such decisions are difficult to explain from a political point of view. If you make a statement that you will not purchase Russian oil and gas, and then say that the purchase will be, but with the aim of making money on it, this is economically true, but difficult to explain from a political point of view. Why don't you stick to your own principles? On the other hand, these measures assume that Russian companies will agree to pay a duty or sell oil and gas at a price no higher than a fixed one. Now oil companies sell black gold at a 30% discount and give this percentage to traders. Let's say Europe comes and says: "Let's give you a 20% discount, but we'll take it for ourselves" - it's rational to assume that Russian companies will agree. But here non-economic objections may arise from Russia. Both sides have strong political motives. To proceed from economic logic alone is not entirely correct here. In addition, there are many different questions regarding the marginal prices for Russian exports. It is said that the price, for example, should not be higher than $100 per barrel – this is a direct violation of existing long-term contracts, which do not stipulate such price adjustment.”