Home Technology Cap on Russian Oil ‘Ridiculous’, Would Push Crude to $140, Expert Says

Cap on Russian Oil ‘Ridiculous’, Would Push Crude to $140, Expert Says

by Atlanta Business Journal
  • IAGS co-director Gal Luft said plan to put a price cap on Russian oil was “ridiculous”.
  • Oil prices cannot be forced down artificially, Guft said, and the plan will not work. 
  • Luft thinks the cap will only cause Russia to retaliate, potentially raising prices to $140 a barrel.

Attempts by Western governments to impose a price cap on Russian oil are “ridiculous,” Gal Luft, the co-director of the Institute for the Analysis of Global Security said, speculating that such a measure could end up pushing prices as high as $140.

Earlier this month, the US and allies floated capping the price paid for Russian oil to as little as $40 a barrel, and US Treasury Secretary Janet Yellen said last week that a cap is “the most potent way to control” high oil prices, and thus inflation. However, a number of energy market experts have expressed doubts since the plan was proposed. 

“It’s kind of a ridiculous idea in my view,” Luft said in an interview on CNBC, noting that oil is a fungible commodity and that barrels of oil are basically interchangeable regardless of who is buying. 

“That’s not how oil prices work. This is a sophisticated market. You cannot force prices down. All it’s going to do is cause the Russians to restrict their production,” Luft added, speculating that Putin may retaliate against the price cap by taking more barrels off the market. “Those Europeans and Americans talking about $40 a barrel, what they’re going to get is $140 a barrel,” he said. 

Although oil prices briefly dropped below $100 this month on recession fears, experts note the declines are likely temporary, especially as a European embargo on Russian energy supplies won’t fully kick in until the end of the year. 

President Biden also left Saudi Arabia this week with no announcement of an oil production hike, leading IEA Chief Fatih Birol to call European nations to develop an emergency plan and prepare for a crisis event this winter.

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