“Transition to state planning within the framework of the global economy”: Russia appreciated the US proposal on marginal oil prices

Russia will not sell oil to those states that will introduce any price ceiling, regardless of its level.

Thus, Deputy Prime Minister Alexander Novak responded to proposals made in the United States to limit the cost of raw materials from the Russian Federation to $60 per barrel.

“They can say whatever they want.

The price should be formed in a market way, based on the balance of supply and demand ... It was clearly stated that we would not supply (oil. -

) to those countries that would use the price ceiling, ”Novak said on October 13 at the Russian forum energy week.

According to him, attempts to limit the cost of raw materials from the Russian Federation create a “very bad precedent” for the entire global economy.

As the deputy chairman of the Cabinet explained, there are no guarantees that in the future similar restrictions will not apply to other goods or other suppliers.

“In general, in fact, this is a transition to the state planning within the framework of the world economy.

If they (those who make such decisions) want it, they should probably think about the consequences.

We went through this: this is a shortage of appropriate resources and rising prices, ”Novak warned.

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• © Komsomolskaya Pravda

The head of the US Treasury Department, Janet Yellen, proposed to set the maximum price for oil from Russia at about $60 per barrel the day before.

According to her assessment, such a cost of raw materials will make it possible to limit Moscow's excess profits from the sale of hydrocarbons and will have a positive impact on the entire global energy industry.

“A price within these limits would be sufficient to consider that Russia can produce and sell profitably (oil. -

) ... We believe that this (the introduction of a price ceiling. -

) will have a beneficial effect on the situation on the energy market in current year and for the future, ”TASS quoted Yellen as saying.

The minister explained her proposal by the fact that the cost of oil production in Russia remains "quite low."

This estimate was confirmed by Freedom Finance Global analyst Vladimir Chernov.

According to him, on average in the country, the production of raw materials is somewhat more expensive than in the OPEC countries, but at the same time much cheaper compared to the UK and the USA.

“In Russia, the cost of production is very different: it is higher on the shelves, and lower in Western Siberia.

There are also hard-to-recover reserves at great depths or in the Arctic.

Therefore, for example, last year the cost of oil production in our country ranged from $15 to $45 per barrel, ”said the interlocutor of RT.

Initially, Western countries considered the possibility of setting a price ceiling for oil from Russia at about $40 per barrel, Igor Yushkov, a leading analyst at the National Energy Security Fund, told RT.

According to him, in this way the West wanted to almost completely deprive Moscow of oil earnings, but now the rhetoric has changed.

“Now the United States, together with its allies, is apparently planning to introduce a mechanism to regulate the global oil price.

The West wants to persuade many to join the initiative, hoping that China and India will agree and persuade Russia to sell oil to everyone at $60 per barrel.

In theory, if Moscow starts exporting raw materials on a large scale at this price, it will knock other players out of the market, which will encourage them to reduce the cost of raw materials as well.

That is, all oil producers will catch up to $60 per barrel.

However, in practice, we are unlikely to see this, ”explained Yushkov.

"Shameless blackmail"

As Alexander Novak noted earlier, the Russian budget was drawn up based on the oil price of $70 per barrel.

It is this cost, according to him, that remains comfortable for the country.

Thus, Moscow does not intend to act contrary to common sense and agree to the "rules" of the West, paying for someone else's well-being at its own expense, as President Vladimir Putin said the day before.

“For those who, instead of business partnerships and market mechanisms, prefer cheating tricks and shameless blackmail, and we have been living in such a paradigm in the political sphere for decades, I want to say that we will not act to our own detriment,” the Russian leader warned.

According to him, the establishment of price limits can only exacerbate the current energy crisis in the world: the investment climate in the global energy industry will worsen, which will provoke an increase in shortages and rising prices.

To confirm his words, the head of state cited a well-known American economist, Nobel Prize winner Milton Friedman.

“If you want to create a shortage, for example, of tomatoes, then you just need to pass a law that retailers cannot sell tomatoes for more than two cents a pound.

You will immediately get a shortage of tomatoes.

It's the same with oil or gas," Putin quoted the scientist.

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• © Alexey Maishev

"There is no point in agreeing"

Recall that back in the spring of 2022, the United States announced a ban on the import of energy resources from Russia, and since May they completely stopped buying raw materials from Moscow.

Following Washington, the UK announced plans to abandon Russian oil, and later a similar initiative was announced in the EU.

The European embargo should be fully operational from December 5 and will only apply to sea shipments, and not to pipeline ones.

Nevertheless, oil exports from Russia to Europe have already declined markedly in recent months.

According to the International Energy Agency, from January to August 2022, the supply of Russian raw materials to the EU countries and the UK fell by more than 34% - from 2.6 million to 1.7 million barrels per day.

At the same time, Moscow continued to receive a high volume of income from the sale of oil due to increased prices for raw materials and the reorientation of supplies to Asian countries.

According to the Ministry of Finance of the Russian Federation, from January to September 2022, Russia earned 7.57 trillion rubles from the export of oil and petroleum products, which is 49% more than in the same period of 2021.

As a result, back in the summer, the authorities of Western countries began to think about limiting the cost of Russian raw materials, and in early October, the European Union included this measure in the next sanctions package.

At the same time, the US called on Saudi Arabia and other OPEC countries to increase their oil production to increase global supply and lower world prices.

However, the Middle Eastern states decided not to make concessions to the West and, together with Russia, agreed, on the contrary, to reduce the production of raw materials.

“The possible application of the price cap mechanism to Russia would create risks for other oil producers as well, as well as cast doubt on OPEC+’s monopoly on control over the oil market.

Probably, the decision of the alliance to reduce production was dictated, among other things, by protecting the interests of oil producers, ”Igor Galaktionov, an expert on the BCS World of Investments stock market, explained to RT.

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• © Vitaliy Timkiv

According to Alexander Novak, in the foreseeable future, world oil prices will continue to remain close to $100 per barrel.

Experts interviewed by RT, in turn, do not rule out reaching higher levels in the coming months.

“After the OPEC+ decision, prices should go up soon.

In addition, the strategic reserves of raw materials in the United States have already reached a record low, and the country will soon begin to actively purchase oil to replenish reserves.

In December, the European embargo comes into force.

All this suggests that by the end of the year world prices may rise to about $120 per barrel.

That is, it makes absolutely no sense for Russia to agree to the restrictions of the West,” said Igor Yushkov.

At the same time, large consumers of energy resources are also unlikely to support the price ceiling, the expert is sure.

According to him, otherwise these countries will be completely without Russian oil, which is already bought at a discount today.