Treasury Secretary Janet Yellen has departed for Asia, where she will seek to gain support for a plan to attempt a price cap on Russian oil as the US is looking to hurt Russia’s profits while keeping gas prices down. Yellen will meet with officials in Japan and then will head to Indonesia to attend a summit of G20 finance ministers.
Yellen is pushing the idea of a price cap over fears that EU sanctions on Russian oil that will take effect by the end of the year could send oil prices to $200 per barrel, which would translate to Americans paying $7 for a gallon of gasoline. The EU sanctions ban the import of Russian oil to most of its members, but more importantly, will ban European companies from providing Russian oil shipments with insurance.
Russian oil shipments still rely on insurance from firms based in the EU and Britain. Russia will be able to find other ways to insure its shipments, and officials have hinted at providing state guarantees to get around the ban, but the initial shock could still send global prices soaring. Under Yellen’s plan, Russian oil shipments could still be insured if sold at the set price, although it would require amending EU sanctions.
But experts and analysts are also warning that attempting to put a cap on Russian oil could also make prices skyrocket. The plan is almost doomed to fail as it requires cooperation from Moscow, which could respond by reducing oil output. Analysts at JPMorgan Chase said that oil could shoot up to a “stratospheric” $380 per barrel in the worst-case scenario if Russia retaliates.
The price cap would also require cooperation from India and China, which have both significantly stepped up their purchase of Russian oil. As a result, Russia is profiting more from oil sales than it was before the war. Both India and China are already purchasing oil from Russia at a discount and have little reason to cross Moscow by complying with a price set by Washington.
Yellen will have a chance to discuss the price cap with China and India’s finance ministers at the G20 summit in Indonesia. Russia will also be present, but a Treasury official told The New York Times that the US delegation won’t have any contact with the Russian one. Secretary of State Antony Blinken attended a meeting of G20 foreign ministers last week and also avoided the Russian side as the Biden administration has abandoned diplomacy with Moscow.