- An oil analyst believes that efforts to reduce Russian oil prices will fundamentally shift the balance power between OPEC countries and the West.
- A scheme that tilts pricing power to the US and Europe “shifts the unspoken red lines,” tweeted Karim Fawaz, director for energy advisory at S&P Global.
- “The more tools consumers have for oil market intervention, the more difficult it is for OPEC maintain price and political leverage.”
An energy analyst says that OPEC’s decision to place a price cap on Russian oil could have wider implications and impact on its power dynamics with the West.
Karim Fawaz, director for energy advisory at S&P Global, tweeted ThursdayOPEC is concerned about a price cap, and views the measure as a stop to future attempts to move markets.
His comments come after Wednesday’s OPEC+ meeting, in which the oil cartel slashed production quota by 2,000,000 barrels per day. This was criticized as Russia-alignment and the White House blasted it. Analysts see the reduction as a response plan to limiting Russian oil prices.
G7 and the US are pushing for the price cap to be a loophole in EU’s embargo on Russian seaborne crude oil. This prevents a supply shock from occurring and reduces Moscow’s export revenues. Fawaz stated that the details of Fawaz’s price cap are still being worked out.
A price cap that is effective would allow large consumers to (i.e. He explained that the West would be provided with a functional, tested tool for foreign policy that fundamentally alters the leverage balance that has shaped oil markets for decades.
He stated that a price cap is better than imposing secondary sanctions or directly targeting oil flows.
It would be a continuation of the Biden administration’s use of the Strategic Petroleum Reserve in order to combat rising crude prices. This is another tool at the West’s disposal, he stated.
“The more tools consumers have in their oil market intervention toolbox – the harder it becomes for OPEC to maintain price and political leverage,” Fawaz said. “Effective targeted sanctions & price cap on one of the largest oil exporters in the world that keeps oil flowing but prices set in Washington and Brussels shifts the unspoken red lines. OPEC is able to see a stick and a carrot where the US sees a carrot.
The European Union approved a cap for Russian oil prices in its latest round sanctions. However, top Russian customers such as China and India have not signed on to the cap, which raises doubts about how effective it would be.
Even if the tool is not effective, it shows that the West has made creative efforts to develop new tools for foreign policy, Fawaz explained.
“More broadly oil and gaz markets are being deconstructed. Commercial and political relationships and the rules are changing.” he stated. “OPEC clearly does NOT like the direction it’s going in, but fighting to stem the tide may accelerate it.”
