“Russia will have to offer buyers an even bigger discount”

Marcel Salikhov, President of the Institute for Energy and Finance, gave an interview to The Bell about the introduction of a "price ceiling" for oil.

- On December 5, an embargo on Russian oil supplies to the EU came into force, and at the same time, the G7 countries and the European Union introduced a price ceiling for Russian oil. How are these two entities related? How will they work together?

- You have to understand the chronology here. In the spring, Western countries gradually imposed an embargo on Russian oil. First, it was introduced by Canada, the US and the UK, which, in principle, bought oil and oil products from Russia, but very little. Then the EU countries agreed on their embargo, it is it that comes into force now. This was the main idea that Western countries were implementing in relation to Russian oil and gas - that an embargo should be introduced.

But by the summer it became clear that this idea does not work very well. Russian oil production and exports more or less recovered after the first shock. If in April oil production was -8% compared to February, then in the summer the decline dropped to -3%.

There was some uncertainty about how these two restrictions - the EU embargo and the price ceiling - would coexist. There could be different options here. Theoretically, the EU could abandon the idea of an embargo and continue to buy Russian oil, but at a price no higher than the agreed one. But in the end, they decided to introduce both an embargo and a price ceiling. And it seems to me that such a construction largely kills the very idea of price cap.

— To what extent will the price ceiling concept work in general and will it solve two main tasks — to protect the market from a sharp rise in prices and reduce Russian foreign exchange earnings? Did this idea have better alternatives in your opinion?

- The idea is not very good in terms of implementation. It is not clear how this [observance of the price cap] is controlled. It seems that Western countries do not understand this either. And this is partly why a price ceiling of $60 per barrel is introduced, which is at the level of the current price. The strategy so far is this: “we don’t really understand what this will affect, but let’s accept something and think further.”

— The EU has agreed on a price ceiling of $60 per barrel. Is it possible to estimate how much such a level could reduce Russia's annual revenue from oil exports? If we proceed from the IEA estimate, according to which, as a result of the embargo, Russia will be forced to reduce production by 2 million barrels per day.

- Roughly speaking, somewhere in the amount of $20 billion. These are not some huge losses, due to which exports will stop, and the budget will lose half of its income. But we do not know how the ceiling will be implemented. Maybe sellers and buyers will jointly find effective ways to get around it.