The Biden administration is pushing other nations to adopt an arbitrary price cap on Russian energy exports as its latest effort to undermine Moscow. However, many economists are skeptical of the effort for its anti-market nature, especially in such a volatile and essential field.
The latest figure to speak out against the proposed price cap is former US Treasury Secretary Steve Mnuchin, who said on Friday that the idea was “not only not feasible, I think it’s the most ridiculous idea I’ve ever heard.”
However, Mnuchin, who under former US President Donald Trump managed the sanctions regimes imposed on nations from Venezuela to Iran, said they could have had “a big impact” on Moscow’s thinking if they had been imposed before the start of the special operation in Ukraine in February 2022.
“I think the problem now is that there’s limited options ... there’s parts of the world that are now buying Russian oil outside of US sanctions,” he said. “But look, a price cap, the market is going to set the price. So if you put sanctions on at higher prices, in a way you’re just making the situation worse, in my opinion.”
Mnuchin’s comments come after reports that the Group of Seven (G7) agreed on a price cap at an emergency meeting this week, called after a missile struck a Polish town on the Ukrainian border, killing two people. While initial reports suggested it could have been a Russian weapon, Warsaw and Washington both later said it was most likely an errant Ukrainian S-300 air defense missile.
However, the topic has been debated for weeks, as Europe struggles to comply with American demands for a total boycott of Russian energy exports and winter nears. According to the plan, trade necessities such as insurance, financing, and access to maritime routes would be withheld from Russian sellers unless the petroleum product was sold at or below a price selected and fixed by Western nations.
The US boycott has helped push up the price of oil and gas around the globe, which has had the opposite of its intended effect, buttressing Russian profits as Moscow shifts from Europe to new buyers in Asia instead of losing out on sales altogether.
The price cap is seen as an attempt to undermine this new advantage and at the same time bring down prices worldwide, which are helping to drive record-high inflation.
For nations that depend heavily on importing Russian gas and oil, such as India, the price cap could be catastrophic, although the present US Treasury Secretary, Janet Yellen, has tried to convince New Delhi that the cap would yield “bargain prices.” That is assuming, of course, that Russia decides to sell oil at the capped price - as it did in September, when the European Union imposed a price cap on Russia gas, resulting in a shutoff of the Nord Stream 1 pipeline.
Choosing to ignore the price cap, however, brings its own price: potentially being cut off from Western resources.
The G7 reportedly plans to have the price cap in operation on December 5, when the EU’s ban on Russian crude oil imports begins. The Brussels-based bloc will ban all other Russian oil products after February 5, 2023.
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