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Janet Yellen Begins Asia Trip to Win Support for Cap on Russian Oil Price


TOKYO—Treasury Secretary

Janet Yellen

has embarked on an international lobbying blitz for a proposal she says will stave off a global recession, working to address technical and diplomatic challenges to her plan to cap the price of Russian oil.

The goal of the proposed price cap, which Ms. Yellen has been championing for months, is twofold: bring energy prices down by keeping Russian oil flowing to the global market and limit the revenue Russia derives from the sales.

The novel proposal has picked up steam in recent weeks, with President Biden and other leaders of the Group of Seven wealthy nations recently endorsing its consideration. Ms. Yellen will focus her first trip to Asia as Treasury secretary on filling in the critical details for making the plan functional. She is expected to discuss the price cap with counterparts during a trip to Japan this week, as well as during coming meetings of finance ministers of the Group of 20 major economies in Indonesia, and in a stop in South Korea.

There are several outstanding issues to settle on the price-cap idea. Those include figuring out exactly how to enforce it, convincing other nations to subscribe to it and deciding the sales price at which Western countries would permit the purchase of Russian oil. Looming over the proposal is also the presumption that Russia would continue to sell oil at a price mandated by the U.S. and its allies.

But with Russia earning billions from its oil sales and with elevated fuel prices contributing to the highest inflation in decades, officials in the Biden administration and across Western countries have been searching for new economic tools to slow Russia’s grinding invasion of Ukraine.

Ms. Yellen, during a trip in Europe in May, acknowledged the difficulty of implementing the price cap.

“While I think a lot of people, including me, find it appealing from a general economic point of view, actually making it operational is challenging and all those issues have not yet been worked through,” she said in Germany.

High oil prices have been beneficial for OPEC+, an alliance of oil-producing countries that controls more than half of the world’s output. WSJ’s Shelby Holliday explains what OPEC+ countries are doing with the windfall and why they aren’t likely to distance themselves from Russia. Illustration: Adele Morgan

The current price-cap proposal stems from a European Union sanctions package that included an embargo on Russian oil imports and a ban on EU firms insuring seaborne shipments of Russian oil. Those steps are set to begin by the end of the year. Because many shipments of Russian oil to countries around the world are insured in the EU and U.K., Ms. Yellen has repeatedly said she is concerned that the EU’s plans could take Russian oil off the global market.

A steep drop in global supply could drive up prices enough that Russia could reap similar revenue from lower sales, while also possibly tilting the global economy into a recession, Ms. Yellen has said. Some analysts expect oil, which is trading at around $105 a barrel, could soar to $200 a barrel if Russian production significantly declines.

“Making it operational is challenging and all those issues have not yet been worked through”

— Janet Yellen on a Russian-oil price cap

A Treasury official traveling with Ms. Yellen said the department’s estimates showed the price of oil could rise to around $140 a barrel with a major loss in production, though the official said the estimates are uncertain.

Now, Ms. Yellen and Western officials are seeking to create a carve-out from the insurance ban. The change would allow firms in the EU, U.K. and elsewhere to insure and finance shipments of Russian oil, if the sales price falls under the cap. The plan seeks to preserve the ability of many developing countries, as well as China and India, to purchase oil from Russia. The country’s oil has already been selling at a discount compared with global benchmarks, while the U.S. and EU have moved to ban it.

A central question in the design is figuring out how to verify that tankers carrying Russian oil will comply with the price cap, as insurers have indicated it would be difficult for them to enforce it.

Letters of credit for oil trades—which generally included the sales price for the oil—and customs checks are ways officials are looking at enforcing the price cap, according to a senior Treasury official.

The official added that even if countries didn’t subscribe to the cap, Russian oil shipped without Western insurance and financial backing would still likely only sell for an additional discount. That would reduce Russia’s revenue from such sales, the official said.

An oil facility in Russia’s Far East. Western nations seek to limit the revenue Moscow reaps from oil sales.



Some question whether Russia would adhere to the economic logic at the center of the plan. It would require Russian President

Vladimir Putin

to sell the oil at a steep discount to avoid shutting down oil wells and permanently reducing the country’s production capacity. A top Russian official recently indicated that the country wouldn’t sell oil under the cap, Reuters reported.

“Even though it’s being sold as this very pragmatic policy I think that’s more on paper than in practice, it basically assumes that the Russia will say ‘oh OK I can’t get that price I guess I’ll take half that price now,’” said

Adam Posen,

the president of the Peterson Institute for International Economics.

Japanese Prime Minister

Fumio Kishida

said during a recent stump speech that the cap would be set at around half of the current price for Russian oil, Japanese media reported.

Ms. Yellen’s efforts on the price cap began when she broached the idea with G-7 finance ministers during a dinner she hosted at the Treasury Department during the spring meetings of the International Monetary Fund and World Bank in April, according to the senior Treasury official.

While the oil price cap has gained traction since then, the political and practical hurdles to implementing it could ultimately prove too large. One of Ms. Yellen’s previous international achievements, the global tax deal agreed to in principle by more than 100 countries, has yet to be put into place as it has been caught up in complicated political dynamics in the EU and the U.S. Congress.

For the oil price cap to work, the U.S. would again have to marshal a large international coalition to abide by it. It would require convincing the 27-members of the EU to adjust elements of their recent sanctions package, which itself was the subject of weeks of difficult negotiations. And while India and China may benefit from lower prices on Russian oil, some analysts expect that they could be hesitant to subscribe to a U.S.-led effort against Russia. The U.S. has been reaching out to many countries, including India, as part of its efforts to put the cap in place, another senior Treasury official said.

Write to Andrew Duehren at [email protected]

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