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We break down price caps — and the economic theory versus reality of how they actually work.
As the war in Iran pushes oil prices higher, some governments are shielding consumers with price controls. But economists warn that caps mask scarcity signals and can trigger the kind of panic buying that can even drive up oil prices more.
The kingdom’s actions are not a violation of sanctions.
Whether they $60 a barrel price cap will continue to work in the long run is an open question though.
The $60 price cap was designed to limit Russian oil revenues, while keeping the oil itself flowing to avoid a global price shock.
An EU diplomat is considering a $65 to $70 per barrel price cap on oil from Russia. But some nations want a more punitive target.
Experts say buy-in from China and India would be key to making the policy work.
Advanced nations will evaluate the idea in an effort to limit Russia’s energy revenue. But Russia could retaliate.
