VERON. Macro View No. 11: The Illusion of Control. Why Governments Cannot Manage Energy Prices

VERON. MACROVIEW. ISSUE No. 11
THE ILLUSION OF CONTROL: WHY GOVERNMENTS’ MANUAL PROSTHESES CANNOT SAVE THE WORLD FROM A GEOECONOMIC STORM
Date: October 29, 2026
When energy prices soar, governments around the world do the same thing: they try to “turn the knobs.” They introduce subsidies, freeze prices, change taxes. They think they are managing the market. But geoeconomics and mathematics are stronger. In the end, the consumer pays twice, and the budget is bursting at the seams. And Russia is not a unique case here. It is merely one symptom of a global disease.

PART I. GEOECONOMICS: WHY PRICES DO NOT LISTEN TO GOVERNMENTS
In 2016, an analytical document from the International Business School of the Gubkin Russian State University of Oil and Gas formulated a thesis: the discounted cash flow (DCF) method does not reflect the real economic essence of a project, because the oil price is not a fundamental parameter, but a speculative variable. The slides of the work directly compared forecasts from international agencies with the real price. The main takeaway was clear: the forecast graphs systematically failed to match reality, and the market price was regulated not only by fundamental supply and demand factors, but also by speculative sentiment, geopolitics, and information noise.
The second slide recorded a discrepancy in OPEC production statistics between the EIA, IEA, OPEC itself, and Bloomberg. This is not a technical error. It is proof that there is no “objective” basis for calculating the price. If four respected sources give different figures for the same indicator, then any norm tied to the “world price” is tied to a construct, not to reality.
The geoeconomics of the 2020s has amplified this gap. Sanctions, wars, and logistical shocks have changed the market structure. Exports no longer guarantee super-profits. Discounts, the shadow fleet, insurance problems — all this has made foreign trade expensive and risky. In 2016, the $20 per barrel scenario seemed like a catastrophe. In 2026, exporters face a different problem: the price may be high, but the margin is eaten up by costs. Geoeconomics has done what domestic regulators could not: it has made domestic markets more attractive. But management systems have not noticed.

PART II. MANUAL PROSTHESES: A GLOBAL OVERVIEW
The domestic price of oil is almost everywhere tied to the export netback: the world price minus the duty minus transport. To curb domestic prices, states use various mechanisms. But almost all of them are manual prostheses that require constant adjustment.
USA: Refusal to Ban Exports as a Tool.
In September 2026, when diesel reached $6.28–6.32 per gallon, the Trump administration publicly discussed the possibility of restricting exports. Interior Secretary Doug Burgum stated: “If we thought an export ban could lower prices, we would have considered it. But it doesn’t.” Why? Because the US already produces more gasoline and diesel than it consumes. The price is determined not by domestic deficit, but by the global market. An export ban will not increase domestic supply — it will only redirect the surplus. Instead of a ban, the US used the SPR (Strategic Petroleum Reserve) and a Jones Act waiver. But the price still rose because the cause was a physical disruption of supplies through the Strait of Hormuz. This confirms the thesis of the document: if the price is formed on the global market, domestic measures do not work until the external shock is eliminated.
Saudi Arabia: Compensation via the “Parity Price”.
Saudi Aramco is obliged to ensure domestic demand. But domestic prices are administratively regulated. If the regulated price is below the “parity price” (the export alternative), the state compensates the difference directly to Aramco. Since 2021, when a price cap on gasoline was introduced, Saudi Aramco has received about 1 trillion riyals in compensation from the state. This is not a damping mechanism in the Russian sense — it is a direct budget subsidy to the producer. The key difference: in Saudi Arabia, the state owns the company, and the subsidy is an internal transfer within the public sector.
Mexico: IEPS as a Price Containment Tool.
Mexico uses the Special Tax on Production and Services (IEPS) as a negative rate: when world prices rise, the government reduces the collection to keep the retail price of gasoline at around 24 pesos per liter. In April 2026, the diesel subsidy reached 70% of the IEPS component. Mexico’s Energy Minister openly admitted: without intervention, gasoline would cost more than 30 pesos per liter, and the budget loses from 3 to 6 pesos per liter. Similarity with Russia: Mexico also subsidizes the gap. Difference: the subsidy goes through a tax mechanism, not through direct payments to oil companies. This is more transparent.
Norway: Market Plus a Rent Tax.
Norway is a major exporter, but domestic prices are not subsidized. Retail prices are determined by the market, and the state extracts rent through taxes: a regular corporate tax of 22% plus a special tax of 56%, resulting in a marginal rate of 78%. The state owns 67% of Equinor and controls the SDFI (portfolio of license shares). That is, Norway does not pay companies to hold back prices, but takes the rent through taxes and ownership.
EU: CBAM as an Attempt to Level the Carbon Footprint.
Since January 1, 2026, the EU has introduced CBAM in full force. Importers of cement, steel, aluminum, and fertilizers must buy CBAM certificates, the price of which is tied to the auction price of EU ETS quotas. This is not a subsidy or a damping mechanism. It is an import tax that levels the carbon cost. The EU does not subsidize domestic prices — it taxes imports.
Russia: The Damping Mechanism as a Manual Fiscal Prosthesis.
The domestic oil price is tied to the export netback. To curb domestic prices, the state introduced the damping mechanism — compensation for the difference between the export and conditional domestic prices. In the first nine months of 2026, the budget paid oil companies 1.221 trillion rubles. In September — a record 305.5 billion rubles in a single month. But the damping mechanism is not an automatic tool. Over the past six years (2020–2026), there have been at least 15 major tax innovations, and 6 of them concerned the damping mechanism. Parameters changed every year. Every year — a new “adjustment.” This is a systemic failure: the mechanism does not work autonomously, which means it is not a mechanism. It is a manual fiscal prosthesis.

PART III. THE GEOECONOMIC PARADOX: MATHEMATICS THAT DOES NOT WORK
All these mechanisms are tuned for high prices. If oil falls to **$10–20 per barrel** (as in 2020, when it went negative, or as in 2016, when it fell below $30), then the manual prostheses will reverse. Companies will start paying the budget. And then — they will go into loss.
And here is the key geoeconomic paradox: they will go into loss not due to the real economy, but due to their own formulas. The very same DCF models that in 2016 showed $20 per barrel as a “critical scenario.” Models that, as the analytical document showed, do not match reality.
This means that systems are not protected from geoeconomic shocks. They are tuned to one scenario (high prices) and break under another (low prices). And then states will again start “turning the knobs,” because there is no automation. This is not protection from volatility. This is the source of volatility.
And this has already happened — in Europe. Between 2009 and 2013, 13 refineries were closed there, reducing capacity by 10%. Formally, the reason was “low margins” and “excess capacity.” But if you look at the numbers, the picture is different: 2005–2008 was a “golden age” of refining, and then margins fell. Why? Because the energy costs of European refineries grew almost twice as fast as those of competitors. And when the DCF model showed that the plant was “inefficient,” it was closed.
The most illustrative example is Coryton in the UK. A plant with a capacity of 172,000 barrels per day was closed in 2012 after the bankruptcy of Petroplus. The administrators at PwC said directly: “We could not afford to continue incurring losses from refining.” The loss for the half-year was $22–31 million. Creditors received a maximum of 6.4% of their claims.
But here is what is important: they did not close because oil was cheap. On the contrary, in 2012, oil cost above $100. They closed because the refining margin at high oil prices went negative. And the DCF model, which calculated this margin, said: “The plant is loss-making.”
And then what always happens when infrastructure is destroyed by formula happened: Europe became dependent on diesel imports. And when the Strait of Hormuz closed in 2026, it turned out that there was not enough refining capacity. The price of diesel is record-high.
This is the exact same paradox as with Russian oil depots and the non-existent refinery in the Far East. The DCF model says “loss” — the infrastructure is closed. And then the geoeconomic shock shows that this infrastructure was needed.
Only in Europe this has already happened. In Russia, it is still ahead.

PART IV. WHY THIS CONCERNS EVERYONE
First. Sanctions and geopolitics have made exports expensive and risky. Domestic markets have become the only stable channel. But management systems have not noticed: they continue to pay for refusing to do what is already unprofitable.
Second. Manual prostheses — the damping mechanism, IEPS, parity compensation — require constant adjustment. In conditions of global turbulence, such systems are doomed to failure.
Third. If oil falls to $10–20, the prostheses will reverse. Companies will go into loss not due to the real economy, but due to their own DCF models, which do not work. This is the geoeconomic paradox: systems are not protected from shocks because they are tuned to one scenario.
Fourth. World experience shows: the US does not subsidize oil companies to hold back prices; Saudi Arabia compensates the difference, but the state owns the company; Mexico reduces the tax (IEPS) instead of direct payments; Norway takes the rent through a 78% tax; the EU taxes imports through CBAM. Russia is the only one that pays private companies to refuse exports. Each model is a response to architecture, not ideology.
Fifth. The exchange is a tool. Brent, Urals, EIA and IEA reports are decorations. The real price is formed in offices where decisions on norms, duties, and compensation are made. The winner is not the one who shouts loudest about the “market,” but the one who sees: the domestic price is a political decision, not an economic law. And it is made by people who bear direct responsibility for it.
Sixth. The geoeconomic storm will not wait for systems to adjust. If the architecture does not change, it will collapse not because of “market conditions,” but because its creators refused to change it. Domestic markets must be secured. Companies must work by domestic rules. Officials must be held accountable. This is the only way out — for any country.
Seventh. A system where the domestic price depends on exchange derivatives rather than on cost is not an economy. It is a rent. Those who built it understand perfectly well that it can only be sustained at the expense of the consumer. But this construction has a shelf life. Sanctions have closed the export arbitrage. The budget has exhausted the resource for subsidizing inefficiency. If the architecture does not change, it will collapse not because of “market conditions,” but because its creators refused to change it.

VERON. Diagnostics of reality without illusions.
The analysis is for informational purposes only and does not constitute an investment recommendation. The material was prepared based on open data and comments from international experts. The analytical document of the International Business School of the Gubkin Russian State University of Oil and Gas (2016) is used as one of the sources documenting the problem, along with other publications and speeches.