Design and implementation of the price cap on Russian oil exports

Simon Johnson, Lukasz Rachel and Catherine Wolfram

Journal of Comparative Economics, 2023, vol. 51, issue 4, 1244-1252

Abstract: Basic economics teaches that price caps are bad – limiting the price of a good distorts demand and discourages producers from supplying the market. So why did the Biden Administration, led by Janet Yellen, the consummate economist, champion a price cap on oil from Russia after it invaded Ukraine in 2022? The answer is that this price cap, implemented for crude oil in December 2022 and oil products in February 2023, differs significantly from the standard cap discussed in introductory economics classes. This paper explains these differences and describes the first six months this policy has been in existence. We provide background on Russian oil trade and describe the goals, structure, enforcement and economics of the price cap. We review the main concerns and contrast them with the outcomes observed to date.

Keywords: Oil; Price cap; Sanctions; War; Energy (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jcecon:v:51:y:2023:i:4:p:1244-1252

DOI: 10.1016/j.jce.2023.06.001

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