Sanctions on gold exports from Russia, an expansion of NATO’s intervention force to six times its current strength, a missile defense system for Ukraine and a broad commitment that the Group of Seven will be with Ukraine for as long as necessary. None of this, secured at this week’s G7 summit in the highlands of the Bavarian Alps in weather ranging from glorious sunshine to thunderstorms, is a trivial achievement. But there was an idea that stood out, both because it is new, it split the G7 and told a bigger story about the dilemma facing the West as it tries to hurt Vladimir Putin’s war economy. It is the proposal of a global energy price ceiling. The idea has a simple appeal as it faces two problems. It will restore energy prices under some form of control, stifling consumer reaction to inflation. At the same time, it will slow down the flow of Western capital to Putin’s war machine, which is heavily dependent on gas and oil revenues from Western markets. Jake Sullivan, the US national security adviser, explained in a statement that the West is facing a dilemma. By its own measures, it has reduced the amount of Russian energy it buys, but due to rising oil prices, revenues to Putin have not been reduced accordingly. Russia, according to business intelligence firm Rystad Energy, will provide at least $ 180 billion (14 147m). This is 45% higher than 2021 and 181% higher than 2020. The solution is on a disarmingly simple level – to refuse to pay what Putin and the market demand. Such an idea, so contrary to the principles of the free market, may seem like a Marxist magic sphere, but it comes with the support of Mario Draghi, former president of the European Central Bank, and Janet Yellen, head of the US Treasury Department. And he is the spiritual son of Washington academics. Proponents, however, advertise slightly different but not necessarily conflicting versions of the idea. Yellen mainly wants to impose a ceiling on the price of offshore oil, which will disproportionately affect Russia. Draghi believes that it is possible to go further by putting a ceiling on Russian gas piped. In a way, his idea has greater potential, as European consumption is not going to retire so quickly. Francesco Giavacchi, the Italian prime minister’s financial adviser, explained to the Guardian Draghi’s plan. He said: “Russia’s gas pipelines are essentially going in two directions: to Europe and – at the moment with a much smaller capacity – to China. A gas producer can slow down the flow of gas, but it cannot stop it. Eventually, if there is no flow, one should start burning gas in the air – which means burning dollars in the air. “Putin could do it, but it would be very expensive for Russia, also politically.” “We need to reduce the amount of money that goes to Russia and get rid of one of the main causes of inflation,” said Draghi, who tends to be heard at economic summits. The oil cap would theoretically work through a lever – the lock. Nearly 95% of the world’s tanker fleet is covered by the International Group of Protection & Indemnity Clubs in the heart of the City of London, and some companies based in mainland Europe. European nations have already agreed to end insurance for Russian oil shipments. Western governments could try to impose a price ceiling by telling buyers that their insurance is available, but only if they agree not to pay more than a certain price for the oil on board. Newspapers published in the G7 do not mention any numbers. It was clearly a battle in the G7 for the US to persuade Germany to get involved in this idea and they reached a classic compromise for the summit to allow the technical experts to go and study the idea. There are many disadvantages to using oil. First, insurers may claim that they are deprived of their lawful business for no good reason. Second, the EU may need to reopen existing painfully agreed oil sanctions packages to approve the idea. This would require unanimity, and Hungary could again block progress in favor of cheaper oil. The EU will also phase out oil markets by the end of the year. Third, Putin could say that if he were asked to sell oil at a marginal cost, he would simply not sell. It has shown with gas that it is ready to give up some revenue by slowing down or closing taps to intimidate gas-dependent countries such as Germany and Moldova. It may not be an economically rational answer from Putin, but the Kremlin is not currently seen as an example of logic. Subscribe to the First Edition, our free daily newsletter – every morning at 7 p.m. BST Finally, and most importantly, the question is whether oil-importing countries such as India, which are less involved in the war, are willing to follow the plan. At one level they would have no choice if they did not have shipping security. But India may also be positive about the idea of buying expensive goods at a cheaper price. Pricing would be a matter of fine-tuning. Oil-producing countries such as Saudi Arabia may also not welcome this part of the new market manipulation, fearing that if it works, it will set a precedent that puts oil-producing nations at the forefront. Mark Mozur, market analyst at S&P Global Commodity Insights, says “the battle is already lost, at least for this year,” as Russia reported high revenues. “Russia’s brazen behavior in reducing gas flows to Europe must be seen in this context: it can do just fine without additional income.” What may have been exciting ideas in meeting rooms up in the Alps may still be that it was the world leaders who held the straw. On the other hand, the belief that oil markets are free is a driving force. They are full of cartels, and maybe it’s time for consumers to have one too.
