Biden “copies” Draghi on Russian oil (to prevent sanctions from becoming a boomerang)

from Federico Rampini

Draghi’s proposal to put a cap on the price of gas appeals to the United States, which would like to apply it to the oil market. Perhaps combining it with secondary sanctions for countries that buy crude oil at discounted prices from Moscow – primarily China and India

The proposal of Mario Draghi to put a ceiling on the European gas price like the United States that wants to apply it to the market Russian oil.

The Biden administration wants to create a “cartel of consumer countries”, starting from the G7, which it imposes a limit to what Moscow can earn from crude oil sales.

The idea is being discussed in these days between the secretary to the US Treasury, Janet Yellen, and the major European governments. It is one of the weapons that Biden would like to include in his – very limited – arsenal. against inflation. Just today the data on the increase in consumer prices in the United States during the month of May came out, + 8.6%, which confirms the urgency to tackle the high cost of living. The price of fossil fuels is one of the causes of this inflation, even in the United States which is also the world’s largest producer of energy: self-sufficiency does not spare them from the price shock, given that world markets are communicating vessels and Crude oil and gas prices are affected by global supply and demand.

The US Treasury Minister faces this acute dilemma over Russian oil: the sanctions, even if partial, reduce the world supply and thus raise prices. The result is doubly negative, on the one hand Western countries are hit by energy increases, on the other Putin, while selling less crude oil, obtains substantial revenues to finance the war, thanks to the increase in prices. «We must be able to ensure that Russian oil continues to flow into the markets – said Yellen – in order to avoid price flares that can trigger a global recession. At the same time, our goal undoubtedly remains that of limit Russia’s revenues“.

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The secretary to the Treasury seeks to square the circle in the creation of a “cartel of oil-consuming countries”, which imposes a stringent ceiling on prices. One of the solutions devised is this, according to an anticipation of the Wall Street Journal: since a large part of oil exports travel by sea and are insured by Western companies (often European companies), it would be a question of imposing a price ceiling on insurance contracts. In obedience to the sanctions already decided by the European Union on Russian oil, insurance companies would be allowed to sign contracts with oil tankers only if the price of crude oil remains below the fixed ceiling. Like this Russia would be forced to accept heavy discounts and its earnings from oil exports would be curtailed.

At the same time, it could continue to legally supply China and India, as it is already doing. Already today Moscow hijacks oil especially in India with considerable discounts, even of 30 dollars a barrel.

The American idea is to force it into even heavier and more generalized reductions, in order to impose a calm on all world prices of fossil energy.

The opposite scenario, which Americans fear, sees a Russia forced into drastic cuts in production that would cause the barrel of crude oil to rise from the current $ 120 to $ 200, and this increase in the cost of energy could precipitate a recession in many parts of the country. world.

The idea of ​​a price cap imposed by the G7 – where the major Western countries plus Japan are represented – could go hand in hand with “Secondary sanctions” on China and India if they buy Russian oil outside the established price.

The way is narrow: it is necessary prevent Western sanctions against Russian oil from having the opposite effect to the desired onethat is, impoverish the West without affecting Putin’s financial resources.

Federico Rampini publishes a newsletter every Saturday: it’s called “Global”, and you sign up here.

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