How sanctions can help stabilise global oil supply in Oil & Companies News 06/03/2026 There were initial concerns that the introduction of the Russian oil price cap in 2022 would see Russia cut production, global oil supply fall, and prices spike, thus hurting oil-importing countries while strengthening Russia’s geopolitical leverage. This column argues that the fact that oil is an exhaustible resource which producers can choose to extract now or leave underground to be sold in the future fundamentally changes how producers respond to price caps. This intertemporal nature of oil production means that a well-designed and credibly enforced price cap can increase near-term extraction, lower world oil prices, and reduce price volatility. Petrostates are back in the spotlight. Venezuela has re-emerged as a flashpoint in US foreign policy, and Russia’s invasion of Ukraine continues to unsettle global energy markets. For decades, economists have grappled with the challenges these countries pose. The literature on the ‘resource curse’ highlights how oil dependence can distort governance, consumption (Arezki et al. 2025), and macroeconomic stability in producing countries (see e.g. van der Ploeg and Venables 2012). But a reliance on fossil fuels also creates a dilemma for countries seeking to confront petrostates. Measures that restrict a petrostate’s ability to sell oil risk removing supply from the global market, pushing up prices, provoking domestic backlash in the sanctioning countries, and even increasing the revenues the petrostate earns on the oil it continues to export. Recent events underscore this tension. For example, when the Trump administration mobilised a naval armada near Iran at the end of January 2026, benchmark oil prices spiked by nearly 10% (CNBC 2026), an outcome that strengthened Iran’s position instead of weakening it. In recent academic work, we show that this trade-off is not inevitable, and under the right conditions, sanctions can be designed to stabilise global oil supply while reducing the revenues of targeted petrostates (Johnson et al., forthcoming). Our analysis focuses on the G7 price cap on Russian oil (Johnson and Wolfram 2024), but the underlying logic has broader applications. The Russian oil price cap, introduced in late 2022, was originally met with scepticism. The dominant concern at the time was straightforward: a binding cap would lead Russia to cut production, global oil supply would fall, prices would spike, and the policy would backfire – hurting oil-importing countries while strengthening Russia’s geopolitical leverage (Carroll 2022). This argument drew on familiar basic economics intuition about price controls: when prices are artificially constrained below market levels, suppliers reduce output. Applied to oil, the fear was that any attempt to limit the price Russia could receive would simply induce shut-ins. What this reasoning missed, however, is that oil is not a standard good, produced anew in each period. It is an exhaustible resource, and that fact fundamentally changes how producers respond to price caps (Hamilton 2009, Anderson et al. 2018). Oil extraction decisions are inherently intertemporal. Producers face a choice between extracting oil today or leaving it underground to be sold in the future. Classic Hotelling logic tells us that the value of an oil reserve reflects not just current prices, but expectations about future prices and their uncertainty. In this setting, policies that alt