WASHINGTON (Pakistan Point News / Sputnik - 13th September, 2022) The price cap mechanism set to be imposed on Russian oil will likely officially stand but will not be effective due to the absence of enforcement required by the realities in the market, Gary Korolev, CEO of the financial services firm Sovereign Wealth Management, told Sputnik.
"The deal, like all others is likely destined to slowly fade into irrelevance," Korolev said.
Korolev pointed out that geopolitics is often more about posturing and showing strength even if the actual strategy has failed, and the collective West is already buying Russian oil on the black/gray market and paying a huge premium for it.
"This new deal will likely officially stand, however de facto will be toothless due to the many exceptions, loopholes, and lack of official enforcement necessitated by the market realities and the needs of western countries to keep their economies from grinding to a standstill," he said.
On September 2, the Group of Seven (G7) countries' finance ministers confirmed their intention to impose a price cap on Russian oil as part of the expanded sanctions campaign against Moscow due to its special operation in Ukraine.
"The deal will likely fail given that large economies like India and China have already shown their unwillingness to fall in line behind the US-led sanctions strategy," he said. "The Indian Economy in particular has benefited from the European sanctions because now India has become a major exporter of refined Russian crude to Europe. India and China are already buying Russian oil at a discount and are making gigantic profits refining this oil due to the frictions created in the market by the West's artificially imposed sanctions."
Korolev said India and China as a matter of strategy have no interest in perpetuating the US-led hegemonic world order that puts their sovereignty in question.
"This is a world order they have experienced since the end of the Cold War. The plan presented by Russia/BRICS allows for a much more balanced international order with more respect for the sovereignty of individual countries and absence of judgment of non-aligned countries in terms of their internal affairs," he said. "India and China only stand to profit from the status quo, so they have no incentive to alienate Russia, lose the profits as well as the competitive advantage versus the West from the current environment."
Korolev explained that going along with the Western-imposed price cap would mean China and India would lose their sizable oil discounts, fat refining margins, oil shipments from Russia and would lose a powerful ally in their fight for sovereignty and the only country who is militarily a peer competitor to the United States.
Commenting on the current short-term price predictions, Korolev said much depends on market psychology rather than fundamentals.
"Having said that, on average, I would expect prices for oil and gas to be higher as the weather gets cooler," he said.
The Western price cap will take effect on December 5 for crude oil and on February 5, 2023, for refined products coming from Russia. Moscow has vowed to stop exporting oil to the states that would apply the price caps.
Russia has put on hold supplying gas via the Nord Stream 1 - the main pipeline supplying Europe with Russian natural gas - due to technical malfunctions.
