Opinion | The G7’s plan to cap Russian oil prices shows promise


“Russia is swimming in cash,” an economist at the Institute of International Finance recently told the Wall Street Journal. This is not the sort of financial news the United States and its allies had hoped to read more than seven months after President Vladimir Putin attacked Ukraine and the West responded with economic sanctions. Those sanctions — including unprecedented asset freezes — have indeed been sweeping, and, coupled with voluntary corporate withdrawals from the Russian market, have helped throw Mr. Putin’s realm into recession. Yet there’s a major weakness: Oil exports from Russia have continued, with Moscow earning $74 billion from them through July, according to the Journal.

This is one reason the ruble has actually appreciated since the invasion began on Feb. 24. Russia is exporting slightly less oil than it did in 2021, in part because of bans by the United States, Canada and Britain, but China and India — and European countries that lack alternative sources — continue to buy Russian oil at prices generally higher than last year.

In short, Russia’s oil earnings are a major reason sanctions have come nowhere near crippling the economy on which its war machine depends. The situation calls for an innovative plan, and the Group of Seven has agreed on one: a proposal, long advocated by Treasury Secretary Janet L. Yellen, whereby the United States and other backers of Ukraine would impose a maximum price on Russian oil through a kind of buyers’ cartel. The key is to exploit British and European firms’ domination of insurance, which global oil shipments depends on, by denying those services to any Russian tankers carrying crude priced above the cap.

Though the G-7 announcement Friday did not mention a specific number, the idea is to set it below the world price, but above Russia’s cost of production. That way, other countries outside the G-7 have an incentive to go along because it means cheaper oil for them; meanwhile, Moscow itself is likely to acquiesce, because making a small profit on oil beats the total embargo the West may impose otherwise.

The mechanism is clever — its underlying principle, astute: Target the flow of hard currency into Russian coffers, not the flow of crude oil out of Russian wells and seaports. The obvious question is whether the United States and its allies can implement it in practice. Already, Russia has issued threats to cut off oil shipments to any countries that participate in the price cap. The Biden administration argues that Moscow is bluffing — and there’s a good chance that’s true, given Russia’s need for cash and lack of alternative sources.

Undoubtedly, Mr. Putin has been anticipating the price cap and trying to figure out how to circumvent it via side deals and other subterfuge. G-7 governments have many details to hammer out between now and December, when the plan is likely to take effect. The prospect of disrupting Russia’s cash flow without disrupting global energy markets is worth the effort.

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