Arguing about the cap
The EU has agreed to scrap its plan to not insure tankers carrying Russian oil in favor of a Biden-sponsored plan to cap the price of oil.
The insurance plan was absurd. Russia would have exported oil in uninsured tankers. The only losers would be Western insurance companies.
Today, the US and the EU are arguing over where the cap is set. Poland wants the $20 limit, and the Biden administration is considering limits up to $70.
The European Union watered down its latest sanctions proposal for a price cap on Russia’s oil exports by delaying their full implementation and relaxing key shipping provisions.
The bloc proposed adding a 45-day transition to the introduction of the cap, according to a document seen by Bloomberg. The proposed grace period would apply to oil loaded before December 5, the date oil sanctions are due to take effect, and discharged before January 19, aligning the EU with a clause previously announced by the US. and the UK.
The EU also proposes a 90-day transition in case of future changes in the level of the maximum price.
Western allies aim to agree Russian oil price cap on Wednesday
The Wall Street Journal reports that the Western allies are seeking to agree on a price cap for Russian oil.
The ambassadors of the 27 member states of the European Union are scheduled to meet on Wednesday, when they will try to reach an agreement on the price. The block must agree on the price cap unanimously And diplomats have warned that this may prove difficult. The G-7 aims to approve the limit in sync with the EU.
The goal of the plan, which was pushed hard by Treasury Secretary Janet Yellen, is to reduce Russian energy export revenues and prevent a rise in oil prices. when a European embargo on Russian oil imports takes effect early next month. Despite European reluctance at the time, the G-7 agreed for the first time to set the oil price ceiling in June, following Russia’s invasion of Ukraine on February 24.
The price cap will replace Europe’s plan to completely ban financing and insurance of Russian oil shipments, which will take effect on December 5. so they want to put the cap price in place for that date.
Objective of the Plan
The goal of the plan is not to eat Russian cake while eating Russian cake.
It’s pretty surprising that anyone thinks the plan can work, but President Biden, the EU, Janet Yellen, and even prominent economists think the cap is a good idea.
Questions and answers Why not?
Q: Why not limit the price of everything and end inflation?
A: Find out.
Q: Is it possible for a cap to appear to work?
A: Yes. If the limit is set high enough, it won’t make sense.
And if by some lucky fate a cap is set where oil is going anyway, then the economic illiterates will be howling and cheering at its supposed success.
Why don’t capital letters work?
- China, India and other countries will not agree. That’s enough to show the ridiculousness of the idea.
- EU countries have an incentive to cheat.
Scroll down to Continue
The incentive to cheat
Here’s a fun clipping from the WSJ:
According to people familiar with the plan, as per a compromise reached by officials in US and EU member states, the ban for vessels will now have a time limit. It will also be based on evidence that the vessel had deliberately breached the maximum price..”
Oh, we broke the limit, but it wasn’t deliberate. What a hoot!
one of two things
- The cap will fail and do nothing.
- The cap fails spectacularly and raises the price by diverting oil heading to the EU to China and India. Then the EU will have to get oil from the US or OPEC through longer routes, which will increase the cost.
The two previous points are isolated. But things should not be seen in isolation. Given a pending global recession, oil prices are likely to decline anyway.
If they do, then, as noted above, the economic illiterates will be shouting and cheering for the supposed success of tapas.
This is all so stupid that only economists and politicians are foolish enough to believe it can work.
That third point is from June 27.
The US and the EU have been fighting ever since to try to reach an agreement on price caps. The bloc still needs the approval of all 27 nations on a precise ceiling.
The struggle to reach an agreement arises from the impossibility of the goal of not eating Russian cake while eating Russian cake.
That just tells you that the plan is doomed.
This post originated from MishTalk.Com.
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