The European Union was meeting this week to decide what to do in response to Vladamir Putin’s bogus “annexation” of four Ukrainian territories. The answer they came up with yesterday was the same one that every NATO nation has settled on from the beginning of the invasion. There will be more sanctions, of course. Since we now live in the era of economic warfare, that’s just about all anyone has to suggest. But while the specific details of the sanctions weren’t immediately made available, one new idea is expected to be included. The EU will seek to impose “price caps” on Russian oil, but that plan, along with an eventual ban on all Russian imports, won’t take place until later in the year. They also don’t appear to have any plan as to how the “price cap” would be enforced. (Associated Press)
European Union countries agreed on Wednesday to impose new sanctions on Russia after it illegally annexed four regions in Ukraine, according to an EU official, including an expected price cap on Russian oil.
EU member-state diplomats struck the deal in Brussels, said the official representing the Czech Republic, which holds the 27-nation bloc’s rotating presidency.
No details of the sanctions were immediately released. They will be published as soon as Thursday.
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A smart person once said that the definition of insanity is doing the same thing over and over again while expecting the result to be different. When Europe and the rest of NATO began curbing the importation of Russian energy products, Russia simply turned around and found other nations that were willing to buy their oil cheaply. Meanwhile, Europe is facing a severe energy crisis with winter fast approaching, and Americans are once again seeing gas prices steadily rising. Let’s face it… economic warfare is complicated and we may not have thought this through very well.
But let’s return to this price cap proposal for a moment. When a company like Gazprom has oil or natural gas to sell, they set the price based on supply levels, market demand, and the cost of bringing the oil to market. Let’s say that the listed price in January (when these new initiatives are likely to take effect) is 75 dollars per barrel for oil. If the EU imposes a “price cap” of 50 dollars, Gazprom is likely to tell them to pound sand and just sell the oil to China, North Korea, Venezuela, and the rest of their customers who are still doing business with them.
The point is, the EU doesn’t have the ability to force anyone in Russia to change the prices of their products if they are unwilling to do so. If the situation results in lower demand for Russian oil, Gazprom may decide to lower their prices in response, but it won’t be because of some European Union price cap. Meanwhile, the refineries that are waiting for their next shipments of oil will wind up raising the prices of their products until oil supplies return to normal. That will translate to even more expensive gasoline, diesel, jet fuel, and heating oil.
We should also keep in mind the fact that OPEC+ has already decided to decrease its oil production, at least in the short term. That’s going to impact the entire globe and we can’t force the OPEC+ nations to produce more oil any more than we can tell Gazprom what to charge for theirs. Remind me again… who are we supposedly punishing with all of these sanctions? Because they seem to be hitting Michigan a lot harder than Moscow.
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