Limiting Russian oil prices has broader implications for OPEC and the cartel's dynamics of influence in the West, BI writes.
Karim Fawaz, director of energy consulting at S&P Global, believes that OPEC is wary of price caps and sees the measure as an obstacle to future efforts to move markets.
Earlier, OPEC+ cut its production quota by 2 million barrels a day, which the White House criticized as an alliance with Russia. Analysts see the cuts as a response to plans to cap Russian oil prices.
The U.S. and G7 are pushing the price ceiling as a loophole in the EU's impending embargo on Russian oil delivered by sea, which prevents a supply shock and limits Moscow's export revenues. But Fawaz said the details of the price cap, some of which have yet to be determined, do not worry OPEC.
An effective price cap would provide large consumers (i.e., the West) with a functional and proven foreign policy tool that fundamentally changes the balance of leverage that has defined oil markets for decades, he explained.
He added that a price cap is a more attractive solution than imposing secondary sanctions or directly restricting oil flows.
The Biden administration has used the Strategic Petroleum Reserve extensively to counter rising oil prices, another tool at the West's disposal.
The more tools consumers have to intervene in the oil market, the harder it is for OPEC to maintain price and political leverage, Fawaz said.
Effective targeted sanctions and a price ceiling on one of the world's largest oil exporters that support oil supplies, but prices set in Washington and Brussels are shifting unspoken red lines. Where the U.S. sees a carrot, OPEC sees a stick, he added.
So far, the European Union has approved a cap on Russian oil prices as part of its latest round of sanctions. But major Russian customers, such as China and India, have not signed up, raising doubts about how effective the restriction will be.
Nevertheless, even if it proves ineffective, it reflects the West's creative efforts to develop new foreign policy tools, something that really worries OPEC, Fawaz said.
More broadly, there is a deconstruction of the oil and gas markets, a redefinition of commercial and political relationships and a change in the rules of the game, he said adding that OPEC clearly doesn't like the direction this is going, but fighting the tide can only accelerate it.