It’s a bit complicated, because you can’t act directly on the market. Washington therefore plans to use insurance companies to achieve its ends. You know that to go to sea, every ship and its cargo must be insured.
However, the European embargo prohibits insurance companies from insuring ships carrying Russian oil.
What the United States is proposing to the G7 is that ships can be insured to transport this oil, if and only if it was purchased below a ceiling price. For example 50 dollars while the barrel of brent on the market is currently 108 dollars.
How does it work
This would release on the market part of the 3 million barrels of Russian oil which will be released in six months because of the European embargo. And it would be interesting for China, India or poor countries that could buy cheaper oil.
Russia, meanwhile, would stop recovering in price what it loses in volume.
But there are several problems: First, insurers say they can’t tell which ships are carrying $50 Russian oil and which are carrying premium oil. Then China could set up its own insurance mechanism.
And above all, Vladimir Putin could quite simply refuse to sell his oil at the price imposed by the Americans, just as he cut off the gas tap to the Europeans even before there was an embargo. He knows that this puts our democracies under pressure.
And it’s getting clearer
Yes, we see that inflation is disorganizing all countries and will cause them to enter recession. Soaring fuel prices are undermining household morale across Europe. And in the United States, Joe Biden is preparing for his midterm elections: he has no desire for the pump bill to soar just before.
The Europeans are pushing for other solutions. Mario Draghi, the Italian Prime Minister, wants to form a cartel of gas buyers to impose a maximum purchase price on all producers. He targets gas because sellers and buyers are linked by the pipeline, so it is easier to act on this market according to him.
Emmanuel Macron, for his part, finds that it would be more effective to continue to put pressure on oil-exporting countries to produce more. Bruno Le Maire will try to find a time to go to Washington in July or at the start of the school year, to continue the discussion with his counterpart, Janet Yellen on all these mechanisms.