Irish economics expert Philip Pilkington has made people sit up and take notice with a surprisingly sharp criticism of the EU sanctions. Speaking to opinion website UnHeard, he predicts: “History will surely remember the great European energy crisis of 2022-23 as one of the strangest historical phenomena. The Europeans voluntarily destroyed their economies in order to impose sanctions on Russia that have no real impact on their objective.” With the onset of winter cold, one would be wise to change course.
The reason for Pilkington’s most recent scolding is the oil price cap just decided by the EU. That won’t work. He also explains why.
The idea of the EU plan: All European countries refuse to pay more than the price they set for Russian oil – which is now $60 a barrel. This will ban Western insurance companies from insuring Russian oil tankers that sell that oil for more than $60. The reactions to this initiative have so far been mixed.
According to Ukrainian President Volodymyr Zelenskyy, this price cap is still too generous and should be set lower. Away from the countries outside the western world, things are very different. Nobody there is currently thinking of taking part in the upper price limit. The response from Russia was unsurprising: it has made it clear that it will not sell oil to customers who ask to pay below market price.
The problem, according to Pilkington, is that the market price for Russian oil will very rarely be as low as the Europeans want. At best, the Europeans will have to buy the oil they now lack somewhere else, and at even higher prices. The scientist illustrates this with the development of the oil price since 2010.
The average price of Russia’s oil between 2010 and 2022 was $75 – $15 above the set price cap of $60. Furthermore, the price of oil has only been twice as low in recent memory due to very specific circumstances that are unlikely to return. For example, the first time, in 2014-2015, the US “massively increased its shale oil production, and second, the Saudis increased production in a market flooded with this new shale oil.”
Only 31 percent of the time has the Russian oil price fallen below $60 throughout the period. In the remaining 69 percent it was above that. “Based on these probabilities, it appears that the market price will typically stay above $60 for the coming months. If this happens, we will demand to pay less than the market price and Russia will refuse to sell us oil.” The consequences, according to the top economist, will be devastating.
“At best, this means we have to buy our oil elsewhere, probably at a much higher price,” notes Philip Pilkington, not entirely without sarcasm. “In the worst case, we will suffer from a serious oil shortage as we will not be able to compensate for the Russian supply disruptions. That means even more inflationary pressures and even greater potential for shortages. For example, most of our supply chains rely on diesel fuel to function. In the event of an oil shortage, expect to see shortages of basic necessities in your business.”
