You say price cap, I mean speed bump. Let’s Call the Whole Thing Off.

So far, the only thing the European leaders have agreed upon is that they want something they can all call a “cap” to look tough on Russia. It doesn’t matter if the final product looks more like a unicorn — highly desirable, but very, very rare — or, increasingly, a bit of a chimera. Both caps are meant to resolve “all of the above” problems while triggering “none of the below” tradeoffs. It will be nothing short than a miracle if they can overcome all the push-me pull-yous.

The wholesale price for natural gases in the European Union is the first of the energy caps. The Title Transfer Facility (TTF) is the first of the energy caps. It is the Dutch gas price, which serves as a benchmark across the continent. The European Commission has proposed a price cap at €275 ($286.40) per megawatt hour, compared to current prices of about €125 per MWh. TTF averaged about €20 per MWh between 2010 and 2020.

The proposal has, however, two additional conditions: the cap will only be triggered if the front-month TTF contract settles for 10 consecutive trading days above €275 per MWh, and if it’s trading at a significant premium to global LNG prices. Those conditions are extreme: They weren’t met during the EU gas crisis in August, when TTF prices briefly settled at a record of nearly €339 per MWh. Critics describe the proposal as “not sufficient” (France), a “mockery” (Spain) or a “joke” (Poland). This cap won’t cap anything.

But that’s likely by design. The European Commission’s technical staff knows it’s futile to regulate global energy prices by decree. What Europe can do — and Brussels has proposed alongside its cap idea — is to build speed bumps, so-called circuit breakers, that can slow down a rally, but not end it. Germany and the Netherlands are opposed to a price cap — at least, to one that works — because they believe it will endanger the security of gas supplies. The countries that want a hard cap, led by Italy, have failed to explain how their policy will not lead to shortages.

In fact, the only way a hard price cap will work is if EU governments introduce a hard cap on demand. But no one in Europe is prepared to regulate who can consume gas and by how much. So the price cap on that source of energy is doomed to fail.

Fiscal capacity is the real issue at the heart of this debate. Every EU nation knows it will have to subsidize energy consumption — and bail out companies — if gas prices remain high. That’s a likely scenario not just this winter but in the 2023-24 season as well. Germany has the financial muscle to afford the subsidies; other EU nations don’t. These countries need to set a price limit in order to limit their energy subsidy spending. Some diplomats joke in the corridors of power in Brussels that they fear Germany more about gas than Russia. EU solidarity: Get rid of the cap and pool fiscal funds. But as we can see, the road to the solution has led to the current impasse.

The negotiations over the other cap — on oil — are concurrent but involve a broader set of national interests. The talks are part of a Group of Seven plan to impose an allied ceiling on the price of Russian oil exports as a blow to Moscow. The proposed cap is around $65-$70 per barrel of oil. That range is above where Putin’s crude currently sells.

Again, that’s a price cap that won’t cap anything. And again, that’s the stealthy objective. 

Washington and others want Russian oil to be kept flowing into the markets, so global prices are below $100 a bar. Even though the tradeoff is the Kremlin continuing to enjoy strong petrodollar flows, In Europe, Poland and others want a price cap that defunds the Kremlin, believing it could hasten the end of the war in Ukraine. They consider higher gasoline prices a fair tradeoff.

So what’s the priority? The idea that a price cap at $65-$70 a barrel will have an impact on Russian President Vladimir Putin is ridiculous. With oil production at an all-time high, the Kremlin makes more money than necessary to fund its war machine. The price cap for defunding Putin must be lower than that of the $45/barrel suggested by European diplomats to American counterparts. It must be precise. With its exceptions for countries such as Japan and Hungary, the current plan is more void than Swiss cheese.

Can a strong G7 oil price limit end the war? I’m skeptical that Putin can be brought to his knees by simply cutting the petrodollar flow. The same policy didn’t work with Iran and Venezuela, and both countries are much weaker financially than Russia is today. The effect of a tough G7 oil price cap will be awful too: It will lead to $100-plus prices in a global economy already burdened by the highest inflation in 40 years. Big importers of Russian oil — think about China, India and Turkey — will finds ways to continue buying.

Only one policy is capable of cutting the flow petrodollars to Putin. That would be a full oil embargo, similar the one imposed on Iraq in 1990 after it invaded Kuwait. It will have a huge impact on oil prices. No one in the West is prepared to implement it. Short of that, however, the G7 oil price cap is doomed to fail.

Bloomberg Opinion:

Putin Rejects Sanctions: Javier Blas

Vladimir Putin’s Guide to Alienating Allies: Clara Ferreira Marques

Putin’s Few Oil Buyers Demand Deep Discounts: Julian Lee

This column is not intended to reflect the views of Bloomberg LP or its owners.

Javier Blas, a Bloomberg Opinion columnist for energy and commodities, is Javier Blas. A former reporter for Bloomberg News and commodities editor at the Financial Times, he is coauthor of “The World for Sale: Money, Power and the Traders Who Barter the Earth’s Resources.”

More stories like this are available on bloomberg.com/opinion