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The West wants to go further with Russian oil. Inflation makes it difficult

New York (CNN Business)Europe and the United Statesban Russia's oil importsand block important ones The Kremlin's source of income. However, the plan to hurt President Vladimir Putin and force him to reconsider the war in Ukraine did not work.

Russia earns as much money from energy exports as it did before the invasion in late February. Meanwhile, inflation is skyrocketing globally, increasing political pressure on leaders such as US President Joe Biden, British Prime Minister Boris Johnson, and French President Emmanuel Macron.

On Sunday, when top economy leaders meet in Germany for theG7 meeting, they will try to reach an agreement on what to do next. Unfortunately, when it comes to oil, there are some good options.
Several measures are being discussed, including price caps on Russia's energy imports, centralized purchases by the European Union, a ban on ship insurance, and targeting countries that continue to purchase from Moscow. They all have drawbacks and some can make prices even higher —endanger general support for Western's determination to punish Putin.

"There are tools available to chase Russia, but it costs a lot directly to consumers in the US and Europe," said Robert Johnston, Deputy Senior Researcher at the Columbia Global Energy Policy Center. I am saying. .. Imposing sanctions on countries that continue to scoop up large amounts of Russian crude oil, such as

ChinaandIndia, will disrupt the global market. prize. I'm already in a severe tension. Treasury Secretary Janet Yellen recently said the United States would like to discuss Russia's oil price caps, but such a complex mechanism may not be the solution the West is looking for.

"When the market needs to work reliably, it distorts the market and there are too many workarounds," Johnston said.

Russia continues to cash out at

The US, UK and Canada have announced a ban on Russia's oil imports. More importantly, Europe will follow Russia's oil imports at sea, given its long-standing reliance on Russia's energy supply. Brock says the ban will apply to 90% of Russia's oil imports by the end of the year.

European customers have already withdrawn. Russia's oil exports to Europe fell to 3.3 million barrels a day in May, down 170,000 barrels a day from the previous month, according to the International Energy Agency.

However, increased exports to Asia helped to make up for most of these losses. For the first time, China has seen imports reach 2 million barrels per day, taking advantage of significant discounts. India's imports are also skyrocketing, reaching nearly 900,000 barrels per day in May.

"We are actively working to redirect trade flows and foreign economic contacts to credible international partners, primarily Brazilian countries," Putinsaid Wednesday { As mentioned in 45}, Brazil, India, China and South Africa are included.

Russia sells barrels of Urals crude oil at a price about $ 35 cheaper than the last Brentglobal benchmark, which traded near $ 113 per barrel. However, it is still making a lot of money this year as prices soared due to the pandemic and aftershocks of the war.

According to the IEA, Russia's oil export revenues increased $ 1.7 billion in May to about $ 20 billion. This is well above the 2021 average of about $ 15 billion.

"Russians are still getting pretty good prices," Johnston said.

US senior officials said addressing this dynamic would be apriority at the G7 meetingtalked to reporters on Wednesday to outline their goals: Spillover: Impact on other parts of the world that maximizes the Putin administration's pain while minimizing its effectiveness.

"We expect them to speak, how can we take steps to further reduce Russia's energy income?" Said one source. "And how do we do this in a way that stabilizes the global energy market and reduces the turmoil and pressure we have seen?"

The remaining tools.

Europe bans insuring ships carrying Russian crude oil to make it difficult for China, India and other countries to continue importing Russian oilAs expected in the UK, given the dominance of the Lloyd's of London insurance market, it will hurt the global system of fuel transport. The Biden administration is nervous about this measure raising prices.

Still, non-profit Global Witness campaigner Mai Rosner said Western countries to give market participants time to come up with creative skirt methods if there was a delay. Ruled that further steps were needed to quickly withdraw Russian oil from the market.

"These fragmentary sanctions leave a loophole for the fossil fuel industry to take advantage of," Rosner said.

The United States, with the support of Europe, may enact so-called secondary sanctions on third-party countries that continue to do business with Russia, similar to Iran and Venezuela. there is. The US government does not exclude this.

However, such a move causes so much confusion that experts consider it unlikely.

According to DWS Commodity Portfolio Manager Darwaken, if China and India have to find replacement barrels, oil prices can easily exceed $ 200 per barrel.

"It's hard to see a world where the United States imposes sanctions on Iran, Venezuela and Russia at the same time," Johnston said. "Oil must come from somewhere."

Biden says that fighting high inflation for the first time in 40 years is a top priority prior to the November midterm elections. I'm emphasizing.

Macron recently lost the support of thelegislature andenjoyed it during his first term, but promised to deal with the rising cost of living crisis. He appointed the "Living Expenses Business Emperor" to work with the private sector on the defeats of two major by-elections last week — possible solutions.

Capping the price of Russian crude oil is one of the solutions that has been posed. That means Russia is not completely separated from the market, but it will be forced to sell oil at prices so low that it cannot be profitable.

Price caps will "push Russia's oil prices down and Putin's income down, while allowing more oil supplies to reach the global market," Treasury Secretary Janet Yellen said. Said last week.

Countries like Germany say they are open to consideringoptionsbut how the West can implement such a policy, or China. And how to get a country like India is not clear sign on.

“I think the more complex the system, the more likely it is that challenges will arise,” says Kung. "The market system works because it's so simple in a way. It's very efficient."

Western governments increase supply or raise prices and demand begins to fall. You can also try to relax the constraints by doing so. Neither is a simple calculus.

Some countries of the Organization of Petroleum Exporting Countries (OPEC) have the capacity to increase production, and Biden will visit Saudi Arabianext month to strengthenrelations. However, much of the cartel's capacity has already reached its limits.

Fuel prices can be very high, and in the event of a global recession, energy demand can fall and prices can begin to fall naturally. However, it is very painful and involves unemployment and financial damage, especially for low-income families.