Futile attempts to make oil cheaper

The United States and the European Union are making a concerted effort to kill two birds with one stone, but so far it has proved futile. On the one hand, they want to punish Russia with an embargo on the import of its energy products in order to reduce its income for conducting aggression against Ukraine. However, these sanctions on Moscow simultaneously reduce the supply of Russian energy products on the market, which partially encourages their price increase. Therefore, Western countries, on the other hand, are trying to force Russia to lower the price of oil and encourage other exporters of "black gold" in the world to increase production.

As part of this, the European Union passed the eighth package of sanctions against Russia last week. In June, it was decided that EU members will stop importing Russian oil by tankers from December 5. Hungary, Slovakia and the Czech Republic are exempt from the ban, because those landlocked countries cannot survive without Russian oil coming to them through the Druzhba pipeline. Serbia was also exempted, as a country on its way to the EU, which could continue importing Russian oil via Janaf through Croatia.

However, under pressure from Washington, the EU went a step further last week and announced a cap on Russian oil prices. In doing so, he joined the decision of the G7 group of countries, which includes Japan and Canada in addition to the USA and the largest European economies. According to the explanations of American Finance Minister Janet Yellen, this would cut Moscow's income for waging war, but Russia could continue exporting oil to the world market, which would reduce pressure on prices.

This means that EU members will completely stop the import of Russian oil by tankers from December 5, but that third countries such as Serbia, which are not in the Union, will only be able to get Russian oil at a price lower than that set by the US and the EU. They have yet to agree on that (low) price. Practically, this means that Serbia will no longer be able to import Russian oil through Janaf, because Moscow has announced the cessation of deliveries to countries that will implement such a decision of Western countries. Like most of the EU, Serbia will have to buy more expensive oil from other countries.

Judging by the announcement of Moscow's boycott if the West limits its prices, there could be less oil on the market in the coming months, and it would be more expensive. The initiative of the Western countries for the forced cheapening of Russian oil can succeed if the largest importers of "black gold" in the world, India and China, join it. However, they refused, claiming that no one would decide for them from whom to buy oil and at what price. It is known that India and China are already getting Russian oil at a discount of 20 to 30 dollars per barrel compared to the market price.

However, last week there was a new shock that upsets the accounts of the West. The Organization of the Petroleum Exporting Countries (OPEC+), led by Saudi Arabia, announced a reduction in production by two million barrels per day from November, which will reduce the world supply of oil by two percent. The US reacted angrily and accused the Saudis of siding with Russia, announcing additional measures to increase the supply of oil on the market and lower the price.

In short, the price of oil cannot be significantly lowered. Fears of a new global recession and reduced demand for energy are not helping matters, as the price of oil has been falling all summer, dropping from $120 to $84 per barrel. Price cap announcements are not helping either, as oil producers have decided to cut production to preserve high revenues. Therefore, last week oil rose in price by 15 percent, to 98 dollars, while Goldman Sachs forecasts a price of more than 100 dollars for the coming months.

Trying to kill two birds with one stone, Western countries have so far failed to reduce Russia's income, nor to cut the price of oil. On the contrary, both flies gained weight in the meantime. The war in Ukraine, moreover, threatens to escalate not only on the battlefield, but also in the international political field. Given the unexpected decision of OPEC and the angry reaction of the US, the crisis over Ukraine may expand into a geopolitical conflict over who will control oil prices - Western countries or its main producers. This will certainly not help the world economy, which is on the verge of recession.

(novilist.hr)