So we just pass a law fixing prices and that’ll be that, right?
Alternatively, and more immediately effective in the crisis we face, oil and gas prices could be capped in wholesale markets through a multilateral effort. The cap on Russian oil prices shows it can be done.
Now we will admit to a certain joy at seeing solutions from the pen of Isabella Weber. We recall her expressed outrage at the manner in which Americans did not treat her PhD, her professorship, with the same social seriousness that such are treated in her native Germany. Frau Dr, Frau Professor and so on, while Americans might just go “Hiya, Izzy”. We always thought that part of the point about international travel, relocation, was to enjoy different cultures and how socially posh academics are is one of those things that changes over cultures.
Still, enough of serious analysis and on to pure snark.
For of course the Russian price cap hasn’t changed consumer prices in the slightest, nor has it changed the amount of profit made. It just changes who makes the profit. From an AI thingie:
Growing Dependency: India's fuel exports to the European Union (including considerations for the UK market) jumped significantly, with a 58% rise in the first three quarters of 2024, highlighting its role as a key supplier.
Alternative Supply Route: The UK has imported oil products from India as part of the broader restructuring of global energy supply chains following disruptions in 2022.
What happens is that the Russian oil - always under the price cap, oh yes, of course - gets exported and then refined. The refined products then get sold at the world price. What used to be profits to the Russian crude companies/state are now profits to the Indian and other refineries.
We saw exactly the same thing when the US used to ban crude exports but not those of refined products. Indeed, that was the big political cat fight about lifting the ban. The refineries were very happy at being able to buy cheaper - cheaper because it could not be exported at the world price - fracked crude and then exporting the products at world prices. That refined could be exported at world prices meant that domestic gasoline etc was also at world prices. Indeed, so happy were the refiners as to be rather miffed when that glorious margin was removed. Yes, the WTI to Brent discount did fall when the crude export ban was rescinded - domestic US crude prices moved up to global minus transport costs.
Much the same has happened about the licencing of LNG trains in the US. Henry Hub gas is much cheaper than European prices (no, there is no global gas price). The people who hugely benefit from this are the users of natural gas to make plastics precursors like ethane. It’s possible to mutter - but not show - that there’s been some pot stirring about the licencing of further LNG export plants which would close the discount such ethane plants currently enjoy.
That is, fixing the one price, or banning or allowing exports, doesn’t in fact work. Us retail consumers out here pay the supply/demand price for whatever it is. Price fixing within the system changes who makes the profits under that but doesn’t change the level of profits. As we’ve seen with the Russian cap, as we’ve seen in the two US examples.
So, no, it won’t work. But then thinking that if there’s just the one change in the law, a fix of pricing, then everyone will obey it is a rather Germanic view of how society works, isn’t it? And, well, no, the rest of the world just doesn’t work as Germany does.
Assuming even Germany itself works that way.
Tim Worstall