December 8, 2022
Don’t look now, but gas prices today are lower than they were a year ago.
But that could change because this week the European Union, the United States, the United Kingdom and Australia hit Russia with two oil sanctions. A price cap on Russian oil and an EU ban on Russian oil shipped by sea (the US already stopped importing Russian oil) as I’ve reported repeatedly, oil is a global commodity and disruptions in one part of the world impact the oil supply around the world. The fact is – it’s just too early to tell how much these moves will destabilize the global oil market and possibly jack up gas prices. So far, there’s been no real impact yet.
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So here’s what’s going on, this all has to do with the Russian invasion of Ukraine and all the ways the west wants cut off Russia’s money supply to fund that war. Russia is the number two oil producer in the world so oil a big source of income for them. Back in May, the 27 member EU Bloc voted that after December 5th they will no longer allow Russian oil to be imported into the bloc by sea. (which accounts for about 90% of it.) But recently, on top of that, the EU, US, UK and Australia also imposed a $60 a barrel price cap on Russian oil for other countries that import Russian oil but don’t have sanctions against them like China, India and Turkey.
How do they enforce it? They hit the global oil insurance and shipping services which are mostly located in G7 countries. The $60 a barrel price cap really says the Americans, the Europeans and the G7 will not service Russian oil shipments unless the oil on that ship is being sold at $60 a barrel. Of course Russia could try and go around that by using other boats, banks and insurers but it would be really hard to do at the volume they need to keep their oil money flowing into Russia.
Russia has denounced the price cap and is working on a response to it including banning oil sales to certain countries or cutting oil production. On the flip side, the EU, UK, US and the G7 say this $60 price cap accomplishes the goal of cutting Russia’s funding mechanism off at the knees while also ensuring that the oil market doesn’t sustain a huge hit. We’ll have to wait and see how it all shakes out.
