Biden Seeks Price Cap on Russian Oil Amid Fears of Gas Shock

Washington — Gasoline pump bailouts, coupled with last week’s news that businesses continue to hire at a tremendous pace, have eased many economists’ concerns that the United States is heading into recession.

But while President Biden’s top aides are celebrating these economic developments, the economy could be severely shocked again later this year, which could put the country in a debilitating recession. I am also concerned about that.

White House officials blame consumers who are already in need, with new European penalties aimed at curbing Russia’s oil flow by the end of the year, raising energy prices anew. And other economies are afraid of serious downturns. That sequence of events could exacerbate the already serious food crisis that has plagued countries around the world.

To prevent the consequences, US officials have adhered to an unprecedented plan aimed at pushing down global oil prices.

Europe continues to linger Over 2 million Every day Russia’s oil barrels are set to enact a ban on their imports at the end of the year, along with other measures intended to complicate Russia’s efforts to export fuel globally. Mr Biden urged Europe to cut off Russian oil as a punishment for the invasion of Ukraine, but some forecasters, along with the president’s highest economic aide, have such a policy with a large amount of Russian oil. I’m afraid that it could bring. Less than 1/10 World Supply — Suddenly took off from the world market.

Analysts have calculated that such supply depletion could cause oil prices to skyrocket to more than $ 200 per barrel. This means that Americans will pay $ 7 per gallon of gasoline. Global growth is expected as consumers and businesses withdraw spending in response to rising fuel prices and central banks, which are already raising interest rates to curb inflation, are forced to raise borrowing costs even higher. It may be reversed.

Another oil crisis could hurt the global economy, and perhaps Mr. Byden’s prospects for reelection, will convince governments and business leaders around the world to sign Russia’s global oil price cap. Driven the attempt.

This is a novel but untested effort that forces Russia to sell its oil to the world at a significant discount. Government officials and Mr Biden say there are two goals. It is to deplete Moscow’s oil-rich war machinery and ease pressure on energy consumers around the world facing rising fuel prices.

To bring oil to the market, Russia uses funding, shipping, and ultimately insurance from the United Kingdom, Europe, and the United States. The European penalties currently being built will not only block Russia from most of Europe’s oil markets, but also from other Western support for its transport. If strictly enforced, these measures could, at least temporarily, eliminate the means of transporting oil to Moscow.

The Biden administration’s proposal does not affect the European ban, but relaxes some of the other restrictions — however, Russian oil transported was sold below prices set by the United States and its allies. Only if. It will allow Moscow to continue to move oil to other parts of the world. Oil currently flowing in France and Germany goes to Central America, Africa and even other places such as China and India, and Russia must sell it at a discounted price.

Some economists and oil industry experts are skeptical that this plan will work as a way to reduce the Kremlin’s profits or as a way to lower the price of pumps. They warn that the plan could primarily enrich oil refiners and that the opportunity for evasion by Russia and its allies could be ripe. Moscow may refuse to sell at the maximum price.

Treasury Secretary Janet Yellen will seek further support for the cap when meeting with Finance Ministers of a group of 20 countries in Asia next week, including Russia. American delegations do not contact Russians, according to Treasury officials.

But even some skeptics say that price caps can maintain enough Russian oil pumps to avoid price spikes that trigger a recession.

Government officials reassure traders that the cap proposal, even in its early stages, can prevent the world from suddenly losing millions of barrels of Russian oil per day at the end of the year. I personally say it’s already useful.

Other government officials have argued for caps on cross-Atlantic video calls and face-to-face meetings in European capitals such as Brussels and London. They talked with other countries, private insurers, and many other officials on how to build and implement price cap plans approved by group leaders in seven countries at last week’s meeting. The German Alps emphasizes the risk of recession.

“We definitely want to be aware of the downside risk and the fact that labor costs are too high,” Deputy Treasury Secretary Wally Adeyemo said in an interview. “I think one of the most effective things we can do to address our concerns is to implement price caps, which reduces the risk of a global recession and is most important to the global economy. It also lowers the price of one of the important things. In the future. “

Dark clouds have been gathering in the world economy for the past few weeks. Researchers at High Frequency Economics estimated in a note to customers last week that recessions had already begun in Europe, the United Kingdom and Japan.

Mr Biden’s closest economic aide claims that the US economy has not yet suffered a recession, despite suffering negative growth for the second straight quarter. Their case is underpinned by the continued strength of the labor market, which added 372,000 jobs in June, and has not yet slowed, as many predictors predicted.

Government officials also believe there is optimistic reason for the fall in global oil prices last week. This should lead to meaningful relief in the coming weeks from the $ 5 a gallon price drivers are paying in many states this summer. The Average domestic price per gallon By the weekend, it had fallen just below $ 4.70, down about 30 cents from its summer highs.

Soaring gas prices earlier this year are a direct result of Russia’s invasion and its Western response, to ban Russian oil imports into the United States and coordinate similar bans among allies. Moved quickly.

In a sense, the price cap proposal acknowledges that these penalties did not work as intended. Russia continues to sell oil at high prices, taking into account discounts given to buyers such as India and China who did not participate. With oil sanctions — Western drivers pay a premium.

At its core, the proposed cap is an attempt to harness the western influence of Russia’s oil transport to determine the prices Moscow can order for oil exports.

The Cap Plan aims to keep Russian oil on the market, but only if it is significantly discounted. Russia can ship oil with Western support, even if the oil is sold below the capped price. Negotiators are working to set that price. This is high enough for Moscow to profit from oil sales, but lower than the current price and about $ 30 lower than the world price.

Insurance companies and financial companies need to participate in efforts to make it work. So are many non-European countries that buy discounted oil. But even if some countries, like China and India, refuse to sign on, government officials are confident that a well-designed cap will lower prices anyway.

Ideally, authorities say the plan can lower global oil prices by reducing the risk of future supply disruptions that traders may consider in their decisions.

Some experts have doubted that the plan will work, saying that the evasion is ripe and will provide Russia with sufficient energy income. If the cap is low, Moscow may refuse to ship the discounted oil and instead cap the well and stop production.

Marshall S. Billingsley, assistant Treasury Secretary for Terrorism financing in the Trump administration, said, “We will make a tough decision to actually stop buying Russian crude oil and actually stop using secondary sanctions. In contrast, this is another mid-measure idea. “

Steve Sikara, an economist at Tufts University who studies energy and environmental regulations, said price caps could squeeze Russia’s earnings but are unlikely to affect global oil prices. rice field. Instead, refineries that buy Russian oil at a discounted price will sell it at a much higher price set by the global market, and in the process will put a plunge in their pockets, he said.

“There is a misunderstanding that setting a price cap lowers the price people pay for gasoline,” says Cicala. “it’s not.”

However, Cicala added that this cap could be successful enough to sustain Russia’s oil flow and thus prevent price spikes that executives are very worried about. rice field.

“It keeps oil coming out of the ground in the end,” he said, “it avoids a global recession.”

Alan Lapeport Report that contributed.