The dismal truth is that Putin is winning the economic war

The dismal truth is that sanctions are not working in the way that had been hoped. Putin is progressively losing his Western markets, but at this stage it doesn’t really matter because skyrocketing prices provide compensating rewards. At the same time, sanctions have greatly contributed to a politically destabilizing cost of living squeeze across the Western world. Putin can reasonably claim to be winning the economic war, even if the physical one is in stalemate.

The G7 intention is simple enough – to reduce the amount of money going to Russia while at the same time countering one of the main causes of rising inflation. Yet even if it were possible to impose such controls internationally, the long term consequences for supply would still be deeply negative.

A number of developers have already threatened to suspend promised new investment in North Sea oil and gas because of Britain’s imposition of a windfall profits tax. A price cap would have much the same effect, but on a grander scale, further undermining the quest for greater energy security.

Even before the pandemic, politically driven net zero targets had prompted a growing hiatus in oil and gas investment.

Collapsing demand for hydrocarbons during the pandemic further reduced the investment required even to keep things ticking over, let alone meet the additional demands now being put on the industry to provide alternatives to Russian energy.

A couple of weeks back, Biden’s White House urged refiners to do their “patriotic duty” by expanding capacity and cutting their prices. The obvious contradiction here went entirely unrecognized. You are unlikely to increase supply if you are also trying to control the price.

Russia could of course take the view that a capped price would be acceptable if it means that Europe and other international markets remain open to its exports. But this would merely bring us back to where we were, as funders of an illegal war that we also condemn. Whichever way you look at it, the price cap idea simply doesn’t add up.

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