Yesterday, the G7 leaders met to discuss an oil buyers' cartel to drive down the price of oil. I commented "The details are still being worked out. Whatever they are, they won't work."
Today, we have the laughable details.
Politico reports G7 Agrees to Find Ways to Impose Price Cap on Russian Oil.
Leaders of the G7 advanced economies on Tuesday reached a broad agreement to seek ways to impose a price cap on Russian oil, overcoming interventions from France that had sought a worldwide scheme, two officials told POLITICO.
The agreement, reached in the early hours of the third day of the G7 summit at Schloss Elmau in the Bavarian Alps, follows growing frustration among Western countries that their embargoes on Russian oil have had the counterproductive effect of driving up the global crude price. This has led to a situation where Moscow ends up earning more money for its war chest and where oil market reactions help drive runaway inflation.
The U.S. had pushed to tackle the problem via a price cap, which could be enforced by lifting sanctions on insurance for the cargo ships that transport Russian oil in return for a price deal. Under the U.S. plan discussed over the previous days, those sanctions would be lifted for countries that agreed only to buy Russian oil at a settled maximum price, creating an incentive to enforce the price cap.
The statement from the leaders ultimately identified this specifically as a preferred choice. “We will consider a range of approaches, including options for a possible comprehensive prohibition of all services, which enable transportation of Russian seaborne crude oil and petroleum products globally, unless the oil is purchased at or below a price to be agreed in consultations with international partners,” the statement said.
The Escalating Stupidity of it All
- The US and EU imposed sanctions on Russian oil and proposed to not buy any.
- With supply reduced and supply chains disrupted, the price of oil rose.
- The US and EU added further sanctions including sanctions on any countries or companies that offered insurance on Russian oil tankers.
- With no insurance, supply reduced further, and prices rose again.
- Sanctions also blocked Biden's ability to get parts, again with the same impact, higher prices.
- But sanctions did not stop the flow of oil or natural gas completely.
- One result is that Russia made as more money on natural gas selling less of it at higher prices than it did before the sanctions.
- Russia avoided the oil sanctions by using small tankers, without insurance, to unload oil in the middle of the night to large Chinese oil tankers. So the oil is getting through, but at more expense, and on longer routes, again driving up the price.
Stop right there because that is where we were right before the G7 laughable solution to the mess.
The collective genius of the G7 concocted a scheme that would allow Russian tankers to get insurance.
Then after Russian tankers get insurance, countries allegedly will refuse to buy the oil above a certain price.
What a Freaking Hoot!
- What is going to force Russia to get insurance on its tankers?
- Even if Russia bought insurance what is going to force China and India to comply?
Regarding point number two, cheating would be massive.
And if you thought it could not possibly get any stupider, well you were wrong.
French President Emmanuel Macron actually proposed the same set of rules for all of OPEC!
Politico reported "Macron upended the discussions on Monday by calling for a worldwide price cap on oil prices instead of only targeting Russian oil sales."
After France backed down, the G7 agreed on the above buyer's cartel deal.
Root of the Stupidity
The G7 does not want Russia to sell any oil but if they succeeded, the price has to rise unless production picks up elsewhere or demand drops.
Rather than admit economic fundamentals, G7 leaders, especially Biden and Macron keep doubling down on dumber and dumber ideas.
This latest proposal is so obviously stupid, I nearly fell out of my chair laughing.
I am a big fan of Occam's Razor. The idea is best described as the simpler the explanation, the more likely it is to be correct.
My corollary is "If stupidity is a possible explanation for anything, that's likely the reason." I use that idea to discard most conspiracy theories.
And as you look at the above proposal, you may be asking "Can these leaders really be that stupid?", the unfortunate answer is "Yes!".
Central Bank Buy-Ins
Treasury Secretary and former Fed Chair Janet Yellen signed off on this cartel idea.
And if you thought current Italian Prime Minister and former ECB chief Mario Draghi has anything on the ball, please think again.
Politico reported "Italian Prime Minister Mario Draghi on Monday also pushed the G7 to eventually expand the price cap to Russian pipeline gas."
That should tell you how we got to the economic crisis we are in.
How Stupidity Happens
Biden Forces Russia to Default, the Repercussions May be Serious
In case you missed it, please see Biden Forces Russia to Default, the Repercussions May be Serious
I discussed the previous Tweet in the above link.
If you think forcing Russia to default was a good idea, you need to think again.
This post originated at MishTalk.Com.
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