Allies Tackle Risky Russian Oil Price Cap As Winter Looms
US officials celebrated in early September when top allies agreed to back an audacious, never-before-tried plan to clamp down on Vladimir Putin’s access to cash as he wages war on Ukraine, Fatima Hussein reported for the Associated Press (AP).
Photo Insert: Treasury leaders say a price cap on oil could deliver the most effective blow to Russia’s economy, undermining its greatest revenue source.
The idea sounded simple enough: The countries would pay only cut-rate prices for Russian oil. That would deprive Putin of money to keep prosecuting his war in Ukraine, but also ensure that oil continued to flow out of Russia and helped to keep global prices low.
A month later, the Group of Seven (G7), representing some of the world’s leading economies, is still figuring out how to execute the plan — a far more complex task than it might seem at first blush — and the Dec. 5 deadline to marshal participants is fast approaching.
In the meantime, the war grinds on. The Kremlin is mobilizing 300,000 more troops to join the invasion of Ukraine and Putin has annexed four Ukrainian regions after Kremlin-orchestrated referendums that the West denounced as shams.
And, while the US and European countries have levied thousands of financial and diplomatic sanctions on Russia, including recently announced penalties, Treasury leaders say a price cap on oil could deliver the most effective blow to Russia’s economy, undermining its greatest revenue source.
Pushed by Treasury Secretary Janet Yellen, the price cap plan is testing the bounds of statecraft and capitalism. Yellen made her reputation as a Federal Reserve chair who helped steer the U.S. into the longest expansion in its history.
Now she’s trying to use global energy markets as a vise to stop a war and keep oil prices from rushing upward this winter. Yellen and her team at Treasury have been lobbying their international counterparts on the price cap since at least May. The US has already blocked Russian oil imports, which were small, to begin with.
“This is an entirely new way to use financial measures against a global bully,” Elizabeth Rosenberg, Treasury’s head of Terrorist Financing and Financial Crimes, said at a recent congressional hearing.