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Helmsley Energy's Founder and Managing Partner, Benedict McAleenan, was interviewed by international news network Al Jazeera. You can view the full article here.
At a recent summit in Bavaria, the G7 announced they were exploring the feasibility of capping Russian oil prices, preventing Moscow from profiting from jumps in market prices due to the invasion of Ukraine. The theory is elegant, but there are notable risks, said Benedict.
“In theory, it’s quite an elegant solution because it uses a ‘threat and reward’ approach. The reward is the chance to buy even cheaper Russian oil. The threat is the prospect of sanctions and not being able to trade with major economies like the US and EU.”
And with such left-field solutions, comes the question of whether any precedent exists for such a scenario? “The Iranian oil sanctions,” said McAleenan, “which work pretty well at limiting the Iranian economy whilst allowing oil exports.” The oil-for-food embargo in 1995 against Saddam Hussain’s Iraq is another example, even if it was beset with logistical and corruption problems.
But McAleenan said for this scheme to succeed, there would have to be a customers’ alliance. “It would effectively be a ‘monopsony’ – a dominant buyer or buying system that can decide prices in the market, ” he said. The idea mirrors the more common concept of a monopoly or a dominant seller such as the intergovernmental Organisation of Petroleum Exporting Countries (OPEC).
“Monopsonies exist in many markets such as nationalised health systems and they can be very effective at lowering prices. But there can be all sorts of unintended consequences, such as boosting black markets and loopholes, as well as market inefficiencies. Also, what if the price cap system suddenly collapses? You’ll see global price shocks,” McAleenan warned.