The G7 group of countries agreed to impose a price cap on Russian oil in an attempt to reduce Moscow’s ability to fund its war in Ukraine.
Russia had already threatened to retaliate by banning oil exports to countries implementing the cap. This will likely cause the same or more inflation that Biden thinks he will avoid.
The Biden administration has been pushing for other first-world governments to introduce a price cap on Russian oil for months, but the measure still needs work. It will need broader international support to be effective.
The International Energy Agency says that since the start of the war in Ukraine, Russian oil exports have dropped by nearly 2.2 million barrels per day to the U.S., U.K., and other G7 nations but all of those same places are experiencing record inflation.
At the same time, nearly 2/3rd of those barrels are now rerouted to China and India. The largest consumers of Russian oil at this time.
It is hard to see any scenario where this is a good idea for the global economy, especially when it is likely to cause even more energy disruption, especially across Europe.
The Russian energy giant Gazprom cut off all supplies to a French utility and temporarily halted regional natural gas deliveries through a vital pipeline this week.
Shortly after the G7 announced their plan Gazpom said they would not resume natural gas deliveries as planned because of an ‘oil leak’.
For more on this story, please consider these sources:
- G7 countries agree to cap the price of Russian oil CNN
- G-7 nations back plan to cap Russian oil prices in a bid to drain the Kremlin’s war chest CNBC
- Russian Oil Faces a Price Cap Under New G-7 Plan The Wall Street Journal
- A Price Cap On Russian Oil—Good in Theory, Hard in Practice | Opinion Newsweek
- Russia-Ukraine Latest News: September 2, 2022 Bloomberg