Italian Prime Minister Mario Draghi has proposed the creation of a new cartel of oil consumers to make markets more favourable to Western buyers.
He floated the idea following a meeting with US President Joe Biden, which included talk on reforming global energy markets after Russia’s invasion of Ukraine.
Speaking to reporters in Washington, he revealed that both leaders discussed the “general concept” of capping prices for oil and gas.
“We are both dissatisfied with the way things work, in terms of oil for the US and in terms of gas for Europe. Prices don’t have any relationship with supply and demand,” he said.
Draghi argued Europe should make use of its “market power”, and suggested his country’s priority would be to limit commodity prices to “reduce the financial help we are giving to Putin to continue the war.”
The world’s leading oil cartel, the Organisation for Petroleum Exporting Countries and its allies (OPEC+), has persistently failed to reach its pledged modest increases in oil output this year.
Despite committing to an extra 432,000 plus barrels per day this month, multiple members have missed their production quotas amid both capacity issues and concerns over a potential supply glut due to continued geopolitical volatility.
Calls from the West to boost supplies have fallen on deaf ears, with tight markets underpinning rallies in March which saw oil prices peak at a 14-year high of $139 per barrel.
Later moves from the US and the International Energy Agency to pledge a combined release of 240m barrels cooled prices, which still remain historically elevated over the $100 milestone.
EU remains split over sanction proposals
Since Russia’s invasion of Ukraine, the European Union (EU) has spent nearly €50bn on Kremlin-backed fossil fuels, considerably more than the aid it has provided to Kyiv.
The trading bloc’s executive branch, the European Commission, is aiming to push through proposals for the EU to phase out Russian oil supplies over the next six months – although Hungary is still withholding support for the measure.
While the EU could bring in restrictions for Russian oil imports – which it relies on for 25 per cent of its crude supplies – the group has shown no sign of bringing in restrictions on Russian gas flows.
Multiple European companies have reportedly caved in to Russian President Vladimir Putin’s demands for Russian gas to be paid in roubles, and Draghi said he was confident the Kremlin’s demand that European buyers pay for Russian gas in roubles will not lead to a disruption of supplies.
The European Commission has warned that complying with Russia’s scheme might breach EU sanctions, but Draghi said it was a “grey zone” with no official ruling on the matter.
He explained: “There is no official pronouncement of what it means to breach sanctions, nobody has ever said anything about whether roubles payments breach sanctions or not, how these payments are organised, so it’s such a grey zone here.”
Italy relies on Russia for 40 per cent of its gas imports – in line with the EU average – but has been urgently seeking to find alternative suppliers.