“They will punish their industry”: how the introduction of a price ceiling for oil and gas can affect the European economy

Games with a ceiling on oil and gas prices will not end well for the authors of such initiatives.

This was announced on Wednesday, December 21, by Chairman of the Federation Council Valentina Matviyenko.

“They will only lead to the fact that the volume of investment in production in the world will decrease - and the volume of hydrocarbon supplies to international markets will decrease.

Accordingly, the guilt will grow (of the initiators of the restrictions. -

).

They will punish their citizens, their industry,” Matvienko said at a press conference following the autumn parliamentary session in 2022.

A similar point of view was expressed the day before by the deputy chairman of the Russian government, Alexander Novak.

The Deputy Prime Minister called the introduction by Western countries of price limits on raw materials a politically motivated step.

Subsequently, according to him, such actions can only result in a shortage of energy resources.

“As for the introduced price ceiling, we believe that this is another political decision, absolutely not economic.

Our colleagues step on the same rake.

By the way, the president spoke about this at the Russian Energy Week (REW), ”TASS quotes Novak as saying.

Back in October, during his speech at the REW plenary session, Head of State Vladimir Putin warned about the risks of setting price ceilings.

As the Russian leader stressed, such decisions will worsen the investment climate in the entire world energy sector and increase the global shortage of raw materials.

As confirmation of his position, the President cited the words of the famous 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 Fridman as saying.

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• © Alexey Maishev

Starting in the spring of 2022, the United States and some other Western states began to refuse to purchase oil from Moscow, and on December 5, the European Union also introduced a partial embargo on the import of Russian raw materials.

On the same day, the G7 countries (USA, Canada, France, Germany, Italy, Japan, Great Britain), the EU and Australia banned their companies from insuring and transporting oil from Russia by sea to other regions of the world at a price higher than $60 per barrel.

The ban on the import of Russian hydrocarbons in the West was explained by the desire to reduce energy dependence on the Russian Federation and put pressure on Moscow in connection with the events in Ukraine.

In turn, the establishment of the marginal cost of oil is intended to limit Russia's excess profits from the sale of raw materials and stabilize the situation with prices on the world energy market.

At the moment, Moscow is preparing countermeasures in response to the decision of the West.

Moreover, earlier in the Kremlin and the government, they repeatedly emphasized that they would not supply energy to those states that would join the introduction of a price ceiling.

Against this background, Russia continues to reorient hydrocarbon exports to the East.

As Alexander Novak noted earlier, Russian oil will continue to be in high demand in the world and, in any case, will find its buyer.

At the same time, under the conditions of external restrictions, the volume of raw materials production in the country may slightly decrease, the Deputy Prime Minister believes.

“We may have situations associated with periods of decline (production. -

) oil, since the situation is uncertain, there is a lot of volatility today.

I don't think it will be big.

Nevertheless, we do not exclude this, although we are doing everything to ensure that the situation is stable and the sale of oil is at the levels that we reached in 2022,” Novak emphasized.

According to Igor Yushkov, an expert at the Financial University under the Government of the Russian Federation, within three to four months, Russia may have difficulties with establishing a new system for transporting raw materials, so Moscow is now offering significant discounts to customers.

So, today a barrel of Russian oil is sold on average $30-35 cheaper than other varieties.

However, in 2023, as sales recover, the size of the discount will be reduced, the RT interlocutor is sure.

“As for world prices, they are still under pressure.

The threat of a global recession and massive rate hikes are weakening business activity, reducing traffic and reducing demand for fuel.

However, there are no new projects with large production volumes now, and China is giving positive signals about the lifting of quarantine restrictions.

If we add to this the decline in oil production in Russia, we will see a shortage of raw materials on the world market and rising prices, ”said Yushkov.

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• © Vitaliy Timkiv

Moreover, according to Valentina Matvienko, due to the limited amount of oil in the world, Western countries are unlikely to be able to completely abandon raw materials from the Russian Federation.

As a result, these states will be forced to continue to buy Russian energy resources, bypassing their own sanctions, but at a higher cost.

“Those who refused (from Russian raw materials. -

), by hook or by crook, through intermediaries, buy and will buy our oil and gas at exorbitant prices, because their volume on the market is certain.

No matter how you divide it, like a pie, there will still be no more of this pie.

And there are no prerequisites for a significant increase in production, ”the speaker of the Federation Council emphasized.

Second ceiling

It is noteworthy that from February 15, 2023, the mechanism for limiting natural gas prices should also work in the European Union.

This idea of ​​the unification countries was approved on December 19.

The tool is planned to be activated if, for three consecutive days, gas at the TTF hub in the Netherlands is traded for more than €180 per 1 MWh (about $2,000 per 1,000 cubic meters) and its cost exceeds world prices by more than €35 on SPG.

Once triggered, the mechanism will operate for at least 20 business days.

“Initially, Europe wanted to introduce a ceiling on prices only for Russian gas.

However, while this mechanism was being developed, the share of raw materials supplies from Russia to the EU fell from 40 to 8%.

It turned out to be a rather stupid situation: why impose restrictions on Russian gas, when European officials themselves boast that dependence on it has significantly decreased.

Therefore, they decided to introduce restrictions against virtually all gas suppliers to their region, ” Stanislav Mitrakhovich, an expert at the National Energy Security Fund, told RT.

According to the expert, through the use of such a non-market tool, the EU authorities want to protect their economy from a new jump in fuel prices and an even greater acceleration of inflation.

However, if the mechanism works, and the cost of gas, for example, in Asia will exceed $2,000 per 1,000 cubic meters.

m, then the sellers will massively redirect supplies to the East, and then Europe will face a shortage.

A similar point of view is shared by Alexey Fedorov, an analyst at TeleTrade.

“Europe has a classic zugzwang that it hopes will disappear in 2023 if the conflict in Ukraine moves into a negotiation phase.

However, this may not happen, and the EU economy will no longer have a small deindustrialization, but a large-scale one.

Many industrial enterprises take 2023 as a litmus test for making a decision to move production to jurisdictions with cheaper energy,” Fedorov concluded.