Yellen Suggests Capping Russian Oil Prices

BALI, Indonesia — Janet Yellen, the secretary of the United States Treasury, stated on Thursday that putting a ceiling on the price of Russian oil will be absolutely necessary in order to help bring inflation down. This week, consumer inflation in the United States reached 9.1 percent, marking a new 40-year high.

Ahead of the beginning of the meeting of the Group of 20 finance ministers and central bank governors in Bali, Yellen said that efforts must be expended to rein in two key economic fallouts from the Russia-Ukraine crisis. These fallouts are high fuel prices and rising food insecurity, both of which are sweeping across the United States and the rest of the world. Yellen’s remarks were made before the meeting began.

She went on to say that the significant increase in the cost of energy was a major contributor to the recent jump in inflation in the United States.

Yellen stated that “we’re seeing negative spillover effects from [the Russia-Ukraine] war in every corner of the world,” specifically in regard to higher energy prices and rising food shortages.

She stated that the United States will continue discussions with other nations to determine “what we can do together to help others around the world impacted by Russia’s war.” She went on to say that this includes devising and enforcing a price ceiling for Russian oil as well as addressing the issue of food insecurity.

“A price cap on Russian oil is one of our most powerful tools to address the pain that Americans and families across the world are feeling at the gas pump and the grocery store right now. A limit on the price of Russian oil will deny Putin revenue his war machine needs.”

The price of oil has skyrocketed as a result of sanctions placed on Russian oil by the United States government and efforts by European nations to reduce their reliance on Russian energy. Following the outbreak of hostilities between Russia and Ukraine in March, the price of a barrel of crude oil climbed to more than $120.

Advertisement

Economists have cautioned that such prohibitions might drive prices as high as $175 per barrel, which would be unsustainable.

The price cap mechanism involved the United States and other countries forming a cartel to buy Russian oil at a low enough price to keep Russian oil production profitable and supply forthcoming, while at the same time denying Russia the ability to fund its war in Ukraine. This was accomplished by keeping the price of Russian oil at a level that was low enough.

Yellen stated that “We’ll build on the historic sanctions we’ve already implemented,” which make it more difficult for Assad to wage his war or grow his economy. “We’ll build on the historic sanctions we’ve already implemented.”

Russia has remained mute on the plan, and other nations that continue to purchase oil from Russia, such as China and India, have also refrained from commenting on it.

“So I’m hopeful that China and India will see that observing a price cap would serve their own interests in lowering the price that they pay for Russian oil, they’re important importers,” Yellen said.

“But even if they don’t observe the price cap, I think it’s certain that many countries that import Russian oil will be affected by the insurance and financial services ban that the EU, and presumably the UK and the U.S. will put into effect.

“We would likely see very much higher global prices because that ban would result in … a significant amount of a shut in for Russian oil.”,” Treasury Secretary Timothy Geithner warned.

Advertisement