Treasury Secretary Janet Yellen and other finance ministers from the Group of Seven are set to meet virtually on Friday and outline their plan to implement a price cap on Russian oil, which experts have warned could send oil prices soaring if Russia doesn’t comply.
According to The Wall Street Journal, after the meeting, the G7 ministers are expected to release an endorsement of the price cap plan and commit to finalizing its implementation.
The idea of the price cap is to limit Russia’s profits from oil sales, which are higher now than before the war while keeping the oil on the global market so prices don’t increase. Yellen has been pushing the idea over fears that oil prices will skyrocket once the EU’s Russian oil ban takes effect on December 5.
Russia has plenty of other markets to sell its oil, but the EU ban will also apply to insurance on shipments of Russian crude. Russian oil shipments still rely on insurance from the EU and Britain. Russia could find alternatives, and Russian officials have hinted at providing state guarantees for shipments, but there will still likely be an initial shock to the market.
Under Yellen’s plan that the G7 ministers will discuss, the EU insurance ban would be reversed if Russian oil is being sold at a set price. But the plan relies on compliance from Russia, and Moscow will not want to sell its oil at a price set by the West.
The plan also relies on compliance from China and India, who have become major buyers of Russian oil in the wake of the Western sanctions campaign. China and India are already purchasing Russian oil at a discount, and have little reason to rock the boat with Moscow. Even if the countries say they will comply, insurance companies have said it would be hard to enforce the set price.
If Russia responds to the attempted price cap by cutting oil production, experts have warned prices could skyrocket. In the worst-case scenario, analysts at JPMorgan Chase said oil could shoot up to a “stratospheric” $380 per barrel. Oil prices are currently hovering around $100 per barrel.