In order to win a game of chess, one doesn’t have to be a grandmaster, only better than one’s opponent. While Vladimir Putin is by no means a geopolitical genius, it would appear that he understands commodity markets better than his Western counterparts. 

As Moscow’s economy shows no sign of collapsing under the weight of sanctions, the Financial Times reported this week that Western officials are now admitting almost no Russian oil is sold below the $60 US-led price cap. The cap had been imposed in an attempt to curb revenues from Russia’s oil exports, enacted by the G7 nations so as to ensure a stable global supply while limiting Putin’s capacity to continue his war in Ukraine. Today it was reported that the EU, unhappy with the results, has proposed further tightening of the cap.

Really, the countries behind the initial restriction were far from unified in their approach. Soon after the price cap came into effect, Japan asked for an exception to buy from Russia above the $60 threshold in order to keep its economy running. There can be little doubt that Putin knew notoriously inelastic products like oil and gas would make a price cap toothless. 

Russia is responsible for 13% of global exports in crude oil and 11% of exports in refined products in a world which is hungry for energy. Had the international community gone along with an almost total boycott of Russian oil, it would likely have collapsed not just Moscow’s economy, but the global economy too. 

It was delusional from the beginning to believe that the G7 could instruct the rest of the world how much to pay for a commodity that the G7 does not itself own. India, China, and even Saudi Arabia happily bought Russian crude at a discount, refined it, and then resold it to Europe and the US. This also created a new boom in the black market for oil, proving once again that nations are not easily deprived of access to the world’s most important resource.

Other approaches could have been taken to damaging Putin’s energy-funded war machine. Inelasticity works both ways, and the commodity analysts at Doomberg have pointed out that “it does not take significant undersupply for prices to skyrocket, nor does it take significant oversupply for prices to crash.” At the height of the Covid pandemic, for example, US crude oil futures plummeted to minus $37 per barrel. 

Imagine if, instead of a price cap, the US and Europe had turned on the energy spigot and built the Keystone XL pipeline, kept nuclear power plants running, and fast-tracked new drilling and fracking permits from Texas to the North Sea. Oil and gas prices would have crashed, severely damaging Russia’s war effort while also hampering the ability of Qatar and Iran to support Hamas with their revenues from selling energy. 

Alas, this would have meant going against the wishes of the environmentalist lobby, an entity apparently more feared than Russia in Western capitals. Energy remains essential for geopolitics. As long as Putin understands this better than his Western opponents, Moscow will not be easily defeated in the war over resources.