The oil price cap sanctions on Russia are proving an unqualified success, according to a senior Treasury official. Speaking at the American Enterprise Institute, Ben Harris, assistant secretary for economic policy and chief economist at the Treasury Department discussed the price regime’s effectiveness to date.
“When we announced this in the Fall we were called lots of nice things on Twitter by experts who say that you don't understand how commodity markets work you can't just cap the price of a commodity. There’'ll be work arounds… We explained we actually do understand how commodity markets work. This isn't a global price cap on a commodity, this is a conditional tweak to the sixth sanctions package, and we actually think that we have enough influence over western services that this will matter.
“We had two goals: one was to keep energy market stable and the second was to reduce Russian revenue. So here we are mid March looking back, and you say well are you successful? The first thing we'll say is look, I want to come with a lot of humility, this has only been in place for really a few weeks. February 5th is when you put in the price caps on refined product. We're not looking for a parade; things can change over time energy markets are fickle.
"That all being said we can look back at least to December 5th we put the price cap on crude and say look we had the two goals. Prices have been remarkably stable over the past several months and they've been trading within a band of about 7 or $8 per barrel.. We've also seen Russian volumes stay relatively stable they're about where they were relative to pre war.
"The second thing you could say is OK fine barrels are flowing that's fine but you are you driving down Russian revenue and the answer is decidedly yes. Pre-invasion, these were basically the same product: there was about a dollar difference between the price of Brent and the price of Ural coming out of Russia. Now you're seeing a spread of about $30. What we have done is we have bifurcated the market. We've taken a commodity we've split in half. Now people care where the oil is coming from whereas before they didn't. The bifurcation in the market has allowed us to maintain this really broad spread, which ultimately drives down revenues so I think we have been successful initially
"We get the question saying look isn't this just aren't you just transferring the rents from the windfall from Russia to China or India and the answer is yes. Anyone buying cheap Russian oil is benefiting from the windfall. We are fine with it as long as it's not Russia.
"So I think I think in the short term we can we can say that this was a reasonably successful policy and we have good evidence to support that assessment. Move forward it's 2023, let's say it's 2028, 2030. What does success look like along that time horizon? I think the most tangible measure of success is that we end the war, and for a ton of a ton of reasons many of which are beyond the scope of my purview of the government, but this war has got to stop. I think that the price cap will not be successful until we've seen the end to the war."