Western restrictions on Russian oil are unlikely to be effective in the short term

After three months of gestation, major Western economies announced last week that they would set a price cap
on Russian crude exports.
This move was opposed by both Russia and Ukraine, and in the context of the gloomy prospects for global economic recovery, the West's action to limit the price of Russian oil is difficult to achieve practical results
in the short term.

On December 2, the European Union, the Group of Seven (G7) and Australia all spoke out in unison, saying that they would set a price cap of $60 per barrel for crude oil exported by Russian sea, and if the price cap is exceeded, it will prohibit the provision of insurance, financial and other services for Russian crude oil transportation, effective as
soon as December 5.
G7 finance ministers issued a joint statement on September 2, announcing their agreement to set a price cap on Russian crude oil and related products to "curb the rise in global energy prices, limit Russia's revenue from oil exports, and thus limit Russia's ability to take military action in Ukraine.
"

The West's action to limit the price of Russian crude oil is quite powerful, but it is not flattering
.
Since September, Russia has made it clear that it will not accept the price limit, stressing that it will not supply crude oil to any country that is ready to impose price restrictions, regardless of the price offered by the other side, because "this practice is interfering in the market mechanism", and warned that such a move would endanger the EU's energy security
.
After the December 2 statement, Ukrainian President Volodymyr Zelensky said that the price cap set by Western countries was not enough to cause damage
to the Russian economy.

Some analysts pointed out that the international energy market has been a seller's monopoly market for many years, and the West's price limit move against Russian oil has inadvertently set a precedent and formed a kind of prototype of an international oil buyers
' monopoly alliance.
The price limit action for Russian oil was implemented under the coordination of the United States, and considering that American natural gas has been sold at high prices in Europe since this year, the intention of the United States to help its own oil companies seize Russia's market share in the world, especially in Europe, is also very obvious
.

OPEC+, a group of OPEC members and non-OPEC producers, held a meeting on December 4 and agreed not to make adjustments to the current oil production policy, and the two organizations have not yet reacted
significantly to Western price limits.
From the perspective of global economic trends and supply and demand in the crude oil market, Western price restrictions may not have the expected effect
in the short term.

First, many sides are bearish about the global economic outlook
for next year.
The Organisation for Economic Co-operation and Development's (OECD) latest Global Economic Outlook report in late November predicts a further slowdown
in global growth in the coming year.
International Monetary Fund (IMF) Managing Director Georgieva said on December 1 that the probability of global economic growth falling below 2% in 2023 is increasing
.
Against this backdrop, global oil demand expectations continue to decline
.
On November 14, the Organization of the Petroleum Exporting Countries (OPEC) forecast in its monthly report that global oil demand would increase by 2.
24 million b/d in 2023, down 100,000 b/d
from its previous forecast.
Factors such as the gloomy economic outlook and the downward revision of market demand will put greater pressure
on crude oil prices.

Second, the current price limit has a limited
impact on Russian crude oil exports.
Light crude futures for January 2023 delivery fell $1.
24, or 1.
53%, to settle at $79.
98 a barrel on the New York Mercantile Exchange on December 2; London Brent crude futures for February 2023 delivery fell $1.
31, or 1.
51%, to settle at $85.
57 a barrel
.
The difference between the relevant price level and the limit price point is not small
.
However, Russia has been selling its crude
oil at a discount this year.
The upper limit price limit is actually much higher than the price of
Russian Urals crude oil.
According to pricing firm Argus Media, the price of Urals crude oil in the Baltic Sea port of Plimorsk recently fluctuated
around $48.
In addition, since the United States and the West sanctioned Russia on the Ukraine crisis, Russian crude oil exports have also changed from west to east and from Europe to Asia, especially India has undertaken a considerable part of the share, which hedges the impact
of price restrictions to a certain extent.

In addition, the price limit of Russian oil involves too many stakeholders, and its coordination is not small
.
Although the United States is very serious about sanctioning Russia, Europe has always been highly dependent on Russian crude oil, and about 30% of the EU's crude oil imports come from Russia
.
This year, due to the interruption of imports of Russian natural gas, Europe was "slaughtered" by US allies, and it is still a mustard
.
Recently, the trade dispute between Europe and the United States has arisen, if the price limit measure is not effective, and the European energy crisis continues to escalate, Europe has a "second heart" or a high probability event in the matter of limiting the price of Russian oil
.