By TIPP EDITORIAL BOARD, TIPP Insights
Only in politics can one substantially water goals down and still claim a significant victory. The Biden administration is a master at this skill, aided by a compliant media.
On March 8, President Biden said that the U.S. would target “the main artery of Russia’s economy” by banning the import of Russian energy products. By April, the E.U. was actively considering doing the same, although the bloc, unlike America, is highly dependent on Russian energy. An E.U. ban would amount to energy suicide. There aren’t enough oil suppliers to make up for Russian energy, and even with stringent conservation efforts, the likely shortfall could push oil prices over $200 a barrel. At a time of historic inflation, the world could not tolerate an oil shock of that magnitude.
By June, Treasury Secretary Janet Yellen began promoting the administration’s snake-oil solution to the problem: imposing a price cap on Russian oil. The idea on paper was simple. Create a buying cartel and dictate the price at which member countries would buy Russian crude. If nations like China and India continued to buy from Russia, the administration would cajole them into joining the buying cartel. If India and China continued not cooperating and misbehaved, Jake Sullivan and Antony Blinken even suggested secondary sanctions. Both countries called the administration’s bluff and continued buying Russian oil anyway.
In June, the talk was that the price would be set a few dollars above the cost of Russian production, $15-$20 a barrel. If Russia went along, or so the Western hubris went, oil would flow freely, and the low price would deprive Russia of profits to fund the war. For months, the administration, the G-7, and the E.U. pursued this strategy, best summarized by a statement from Treasury on September 2.
“Today, the G7 took a critical step forward in achieving our dual goals of putting downward pressure on global energy prices while denying Putin revenue to fund his brutal war in Ukraine. By committing to finalize and implement a price cap, the G7 will significantly reduce Russia’s main source of funding for its illegal war, while maintaining supplies to global energy markets by keeping Russian oil flowing at lower prices.”
There was one problem. If Russia refused to sell at the oil cap price – by simply turning production off – oil markets could shoot up, creating havoc. The Kremlin has hinted on multiple occasions that it wouldn’t sell oil to member states participating in the price cap, but the West pushed through the dubious plan anyway.
As the December 5 self-imposed price cap announcement date approached, the administration saw that the world’s sands began to shift. Saudi Arabia had thumbed its nose at Biden and engineered a cut in oil production at the OPEC+ meeting rather than an increase that the U.S. sought.
Humiliated and wanting to save skin, the administration began moving its goalposts. On October 14, speaking at a news conference as part of this year’s IMF and World Bank meetings, Yellen said a price cap “will help stabilize global energy prices” and give developing countries leverage to negotiate better prices for Russian oil. In a remarkable about-face, starving Russia of oil profits to fund the war was no longer a stated goal.
Indeed, the price cap deal the West announced yesterday was so watered down that it was a far cry from the original aggressive statements to cripple Russia’s war machine. The cap was set at $60 a barrel when Brent crude was trading at about $65, much higher than Russia’s cost of production. Russia has been selling to India and China at $60-$65 a barrel, so the deal ironically locked in a price at which Russia could derive billions in profits by selling to the very countries that have steadfastly imposed sanctions.
The agreement also doesn’t penalize India or China for buying Russian oil. Yellen indicated this in an embarrassing U-turn in November when she said India could buy as much Russian oil as it wanted outside the price cap. So much for her colleagues threatening India with secondary sanctions a few months ago.
Even worse, the future of this preposterous plan looks weak. The $60 cap will be valid until January 15, when the E.U. will again review the price. Officials have pledged to keep the price at 5% lower than the price Russian oil is being traded at the market. Again, this is a far cry from starving Russia of oil revenues.
But for the consumption of the press, the statements were as bombastic as ever.
“Together, the G7, European Union, and Australia have now jointly set a cap on the price of seaborne Russian oil that will help us achieve our goal of restricting Putin’s primary source of revenue for his illegal war in Ukraine while simultaneously preserving the stability of global energy supplies,” said Treasury Secretary Janet L. Yellen.
Yeah, right, Madam Secretary.
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