Oil price caps

Carlo Cipolla was an Italian economic historian. He wrote a book about the theory of human stupidity. His theory was based on five fundamental laws, one of which is that stupid people are defined as taking actions that hurt both themselves and others. I was reminded of his work when I heard about the latest announcement from the EU, G7 and Australia to impose a cap on the price of Russian sourced oil of US$60 per barrel.

The leaders in the EU and other countries making this decision have immediately proven themselves to be stupid in the terms of Cipolla’s work. In addition to his definition of stupid people, he theorised that stupid people are in all walks of life and stupidity is uncorrelated to IQ, education attainment, experience etc. The EU leadership is likely to contain just as many stupid people as the leadership of the G7 countries, big business and sports administrators.

Why has the price cap been imposed? That is not clear. The EU announcement stated it would smooth out energy markets and prevent Russia trading oil by third parties and hence getting around current sanctions. Will it? Why is US$60 the right price cap and not, say, US$50. Or US$30? If price caps help the world’s energy markets and damage Russia’s economy, then why not US$0? Stop buying Russian oil completely.

Of course, to ask such questions is to demonstrate the absurdity of thinking by anyone who tries to impose a price cap. Despite countless centuries of trying and failing, price caps are still favoured by some in positions of leadership.

Russia has already responded by announcing it will not accept the cap. By this, they mean that they will not sell any oil to any party that is imposing the cap. Obviously, Russia believes that it has enough customers in China, India, SE Asia, Africa and South America to sell its supplies to at the going rate. Furthermore, once supply lines have been modified accordingly, Russia will have no need to care about future bleating from the EU. The EU is making itself irrelevant. It will have to source oil from other suppliers, at whatever the market price is, and that price is likely to be higher than it would have been had this cap never seen the light of day. These people are stupid because their actions will hurt all Europeans, including themselves.

One thought on “Oil price caps

  1. “he theorised that stupid people are in all walks of life and stupidity is uncorrelated to IQ, education attainment, experience etc.” I liked that. Certainly, if correct, would explain a lot!

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