Loose collars… Still plenty of pressure. This year’s Group of 7 meeting, which wraps today in Germany, had a surprisingly casual dress code. The agenda: not-so-casual. President Biden and other leaders of the world’s wealthiest democracies spent three days debating how to punish Russian President Putin for his continued war in Ukraine — without punishing consumers. The details:
- Oil be darned: The US already banned Russian oil imports, and the EU is phasing them out. But thanks to wild prices, Russia’s making even more $$ from oil than it did pre-Ukraine war.
- Set the max: G7 leaders want to cap Russian oil prices to shrink Russia’s oil sales without shrinking global supply. Think: countries all agree to pay a lower price for Russian oil.
- Going for the gold: The G7 needs other nations to participate for the price cap to succeed, and hasn’t finalized the plan. In the meantime, it’s banning Russian gold imports, which earned the country $15B last year.
IOU… Western sanctions are hurting Russia’s access to cash. On Sunday, Russia reportedly defaulted on $100M of foreign debt payments for the first time in a century — Putin denies it. But Russia’s economy has been relatively resilient: the ruble has rebounded and shelves have stayed stocked thanks to domestic production and increased trade with Turkey, India, and China — they’re snapping up Russian oil.
It’s a delicate balancing act… So far, Western sanctions haven’t shut down Russia’s economy or forced it to end its war. But if enough countries agree to participate in an oil-price cap, they could curb Russia’s oil sales immediately without hurting consumers. It’s not a risk-free strategy: if Russia cuts production in response to the cap, global oil prices could soar even higher.