Oil crisis averted as Russian crude gets price-capped

A few months ago, it was a glimmer in the eyes of some U.S. economic diplomacy wonks. Now, a price cap on Russian oil — imposed by U.S. and European allies to try to throttle revenues to Russia — is a reality.

Driving the news: The cap, agreed at $60 per barrel on Friday, is meant to be enough to give Russia incentive to keep pumping oil, contributing to global supply, but prevent windfall profits amid its war in Ukraine.

• The policy allows those importing Russian oil to take advantage of Western shipping, financing and insurance, only if they pay at or below the $60 price.

Right now the debate is over whether the price is too high or too low. Ukraine and some of its closest allies like Poland wanted the number set lower to punish Russian President Vladimir Putin more. Shipping nations like Greece wanted it higher.

Flashback: But amid arguments over the details of the policy design, it's easy to miss what the strategy has achieved relative to expectations that prevailed among energy analysts this past spring, in the early days of the Ukraine war.

• The conventional wisdom was that, given Europe's commitment to applying maximum pressure on Putin, the result would be sharply fewer global oil supplies, resulting in price spikes and risking economic crisis.

• In an April note, JPMorgan analysts estimated oil would reach $185 a barrel in the event of a full embargo of Russian oil, as Europe had threatened. In March, Goldman Sachs analysts were forecasting $135 per barrel of oil for year-end.
• Numbers like those would have meant both higher inflation and high odds of a global recession.

By the numbers: Brent crude now stands at around $86 a barrel, down from $123 in June.