By Daniel DePetris
In late June, the G7 (the United States, United Kingdom, Italy, Germany, France, Canada, and Japan) met for their annual leaders' summit in Elmau, Germany. After the three-day event, the world's economic powerhouses settled on a consensus to pressure Russian President Vladimir Putin's war-chest: go after Russia's oil industry by establishing a cap on how much importers can pay for Russian crude. Allegedly the brainchild of U.S. Treasury Secretary Janet Yellen, the price cap aimed to cut Russia's oil revenue while ensuring global supply wouldn't plummet.
G7 finance ministers will discuss the specifics of the price cap plan on Friday, Sept. 2, with the goal of unrolling a framework about how it would operate. The concept is a flawless one, in theory. If Washington and its European partners assemble a widespread "buyer's cartel" and actually enforce it, Moscow would no longer be able to exploit today's high market prices and could lose out on tens of billions of dollars a year. Russia is expected to make $337 billion from energy exports this year, a 38 percent increase from 2021. And because Russia would still be permitted to export oil to customers around the world, the price cap scheme would prevent an energy crisis that would otherwise result from a full-on Russian oil ban.
Yet the optimal question is whether the plan would work in practice. There are political, legal, and practical reasons for why caution is in order.
This piece was originally published in Newsweek on September 1, 2022. Read more HERE.