Flailing in its effort to lower Russia’s oil profits, the US has put forward an idea for a price cap on Russian oil that is being considered by the G7. But the plan, first floated by Treasury Secretary Janet Yellen, doesn’t seem feasible as it requires cooperation from Russian President Vladimir Putin as well as China and India.
The G7 hasn’t offered any detail on the plan, but the idea would be to limit Russia’s profits without taking its oil off the global market and raising prices. But there’s virtually no chance that Putin would agree to sell Russian oil at a price set by the US. If the West tried to enforce the cap, it’s likely Putin would just stop selling oil to Europe since the EU has agreed on a phased ban of the commodity for most of its members that will take effect by the end of the year.
Despite the Western sanctions, Russia is profiting more from oil now than it did before the war, thanks to an increase in prices and China and India significantly stepping up their purchases. China and India have already been buying Russian oil at a discount and are not likely to agree with any Western plans since they have ignored US pressure to curb their imports from Russia up to this point.
In the unlikely event that Russia, China, and India agree to the price cap, it would likely raise global prices anyway. An artificially low price would mean more demand than what Russia could produce, which would lead to shortages of Russian crude.
Despite how unfeasible the plan is, the G7 sounds like it’s seriously considering it. Biden and the other G7 leaders said in a joint communiqué on Tuesday that they are considering a “range of approaches” on Russian oil, including banning its shipment “unless the oil is purchased at or below a price to be agreed in consultation with international partners.”