Russia’s invasion of Ukraine started on February 24. The “special operation” was launched by Vladimir Putin with the supposed goal of “demilitarizing” Ukraine and “de-Nazifying” it.
Since that time, thousands of innocent civilians and tens of thousands of soldiers on both sides lost their lives.
One big reason why Russia continues its invasion and survived sanctions is its massive amounts of oil and ability to sell them in various markets worldwide, including in Europe. In fact, that is the single main reason.
Europe is moving to end all Russian oil use by this December, but many problems remain.
Now, the US Treasury chief Janet Yellen says she has a solution that will stop Russia’s aggression once and for all.
Yellen’s plan is simple, but controversial. Some world leaders do not believe it will work; it still remains to be seen who will sign onto it or not.
As Yellen heads to a G20 meeting in Indonesia, she plans to put a cap on Russia’s oil pricing. The purpose is to cut into Russia’s profits and make it unable to keep funding its war efforts to the same extent.
This would also keep oil prices down globally, which are set to head upwards of $140 a barrel in the coming months if nothing is done.
A price cap, if agreed on by other nations, would essentially undercut Russia’s ability to keep selling oil at a handsome profit. Other countries who import it would simply all refuse to pay above a certain set amount.
The result would be much less profits for Russia and better energy prices for much of the world.
There is no doubt this is a bold plan. Whether you agree with it or not, Yellen is certainly showing the kind of leadership that’s been sorely lacking in the Biden administration thus far.
U.S. Treasury Secretary Yellen plans to advocate for a price cap on Russian oil during her first trip to the Indo-Pacific, — Japan, Indonesia and South Korea — in what amounts to an attempt to curb revenues flowing to the Kremlin as it wages war on Ukraine…#StandWithUkraine
— Alex Raufoglu (@ralakbar) July 8, 2022
The Current Reality
The current reality is that asking for a price cap from everyone is a big demand; there are many nations that will have a lot of leverage in return for doing that.
In addition, current ideas to cut off Russia’s ability to send oil by sea tankers is also not very smart; it would further weaken the supply chain and send prices even higher.
Yellen’s idea is basically to let the Russian oil through and keep prices down, as long as the price per barrel (PPB) is kept under a certain cap.
It would be very hard to enforce a price cap; relying on good faith from dozens of nations is a big sell. As I said, Yellen’s plan is nothing if not bold.
Wall of Japanese reporters here at Japan’s ministry of finance awaiting Secretary Yellen.
Japanese officials are talking with the US about ensuring a proposed price cap on Russian oil doesn’t lead Putin to shut off oil production/exports, on which Japan depends pic.twitter.com/iXSWwZrFbz
— Jeff Stein (@JStein_WaPo) July 12, 2022
The Bottom Line
Yellen’s plan is likely more of a threat than a real plan. Russia will simply cut off oil exports to unfriendly nations if it is hit with caps. This could drag us into an even more dire world economic situation.