Treasury Secretary Janet Yellen has once again achieved an unexpected win on the global stage, rallying allies to a plan to curb Russian oil revenues. But, as before, it remains unclear whether she can make her proposal a reality.
(Bloomberg) — Treasury Secretary Janet Yellen has once again achieved an unexpected win on the global stage, rallying allies to a plan to curb Russian oil revenues. But, as before, it remains unclear whether she can make her proposal a reality.
Despite naysayers and opposition — even from within President Joe Biden’s administration and among key allies — Yellen convinced the world’s key advanced economies to back a proposal to cap the price of Russian oil exports. Group of Seven finance ministers endorsed an outline for the plan Friday after months of steady persuasion by the Treasury chief and her deputies.
Such a deal had seemed as unlikely as her achievement last year to get about 140 countries to back a historic revamp of global corporate tax rules. And, like that earlier endeavor, it still faces obstacles that might yet turn a surprising success to bitter failure.
For starters, the plan will require unanimous backing from the European Union’s 27 members for an amendment to its last batch of sanctions against Russia, a particularly high bar to clear.
QuickTake: A ‘Price Cap’ on Russian Oil — Can That Work?
Hungary, which has also blocked the EU’s adoption of a key part of Yellen’s global tax deal, has said it won’t support the Russian oil measure.
Hungary just sealed an agreement with Russia’s Gazprom PJSC to boost its natural-gas supplies for September and October, easing the country’s winter-energy concerns. If Hungary were to back the changes necessary to implement the price cap, that could put its deal with Gazprom in jeopardy, said Jacob Kirkegaard, a senior fellow based in Brussels at the German Marshall Fund.
“I could certainly see Orban’s interest in being a spoiler here,” Kirkegaard said, referring to Hungary’s Prime Minister Viktor Orban.
Skeptical Buyers
Uncertainties also exist outside Europe, particularly as China and India, among the biggest buyers of Russian oil, are unlikely to back the plan, but are still seeking cheaper Russian oil.
Indian officials told the Treasury Department in meetings last week that their main goal was to secure the cheapest oil possible, which New Delhi sees happening without joining the coalition, according to a US official speaking to reporters Friday. One Indonesian government official said in August that Russia had already offered to sell at a 30% discount.
While the US Treasury highlighted those points as reasons to believe the oil cap plan could work even without a commitment from all buyers, it’s unclear yet how long that success can last.
As well, Yellen has less than three months before EU sanctions take effect to finalize the price cap, which would effectively allow the flow of Russian oil to continue as long as its purchased at a deep discount to market prices.
Internal Opposition
In the months leading up to the deal announced Friday, opposition came even from within the Biden administration. According to one person familiar with internal deliberations, a faction within the State Department opposed the price cap, believing it would be impossible to implement or enforce given so many countries, including India, need Russian oil and would have no incentive to abide by it.
That group in the State Department believed instead the administration should focus on imposing secondary sanctions to punish violators of the economic restrictions on Russia. But Yellen’s Treasury has been wary of secondary sanctions because of the damage they could inflict on the global economy.
The plan also faced opposition in Japan and disagreement in Europe over the need for it. While Washington worried the EU’s coming services bans would shut in Russian oil and cause a global price spike, few Europeans agreed with that analysis.
“I don’t think anybody really knows how they’re gonna work it,” said Vikas Dwivedi, an oil and gas economist at Macquarie Capital. “There’s still going to have to be a lot of stuff to get figured out.”
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