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

TOKYO — Treasury Secretary Janet Yellen has launched an international lobbying blitz for a proposal she says will stave off a global recession and is working to address technical and diplomatic challenges to her plan to cap the price of Russian oil.

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

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

There are several open questions that need to be clarified with the price cap idea. This includes figuring out exactly how to enforce it, persuading other nations to join it, and setting the selling price at which Western countries would allow Russian oil to be bought. Also hanging over the proposal is the assumption that Russia would continue to sell oil at a price dictated by the US and its allies.

But with Russia making billions from its oil sales and soaring fuel prices contributing to the highest inflation in decades, officials in the Biden administration and across Western countries have been looking for new economic tools to slow Russia’s at-risk invasion of Ukraine.

Ms Yellen acknowledged the difficulty of enforcing the price cap during a trip to Europe in May.

“While I think a lot of people, including myself, find it attractive from a general economic perspective, actually getting it up and running is a challenge, and all of those issues have not been resolved,” she said in Germany.

High oil prices have been beneficial for OPEC+, an alliance of oil-producing countries that control more than half of world production. WSJ’s Shelby Holliday explains what OPEC+ countries are doing with the windfall and why they’re unlikely to distance themselves from Russia. Pictured: Adele Morgan

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

A sharp drop in global supply could push prices up enough for Russia to reap similar earnings from lower sales while the global economy is potentially plunged into recession, Ms Yellen said. Some analysts expect oil, which is trading at around $105 a barrel, could rally to $200 a barrel if Russian production falls significantly.

“Commissioning is a challenge and all of these issues have not yet been resolved.”

— Janet Yellen on a Russian oil price cap

Now Ms Yellen and western officials are trying to create a spin-off from the insurance ban. The change would allow companies in the EU, UK and elsewhere to insure and finance shipments of Russian oil when the selling price falls below the cap. The plan aims to preserve the ability of many developing countries, as well as China and India, to buy oil from Russia. The country’s oil has already been selling at a discount to global benchmarks while the US and EU moved to ban it.

A key design issue is how to verify that tankers carrying Russian oil comply with the price cap, as insurers have indicated they would find it difficult to enforce.

Letters of credit for oil trades — which generally included the sale price for the oil — and customs inspections are ways officials want to enforce the price cap, according to a senior Treasury Department official.

The official added that Russian oil delivered without Western insurance and financial support would likely only be sold at an additional discount even if the countries had not signed the cap. That would reduce Russia’s revenue from such sales, the official said.

An oil facility in Russia’s Far East. Western nations are trying to limit Moscow’s revenue from oil sales.



Some doubt Russia would stick to the economic logic at the heart of the plan. It would require Russian President Vladimir Putin to sell the oil at a deep discount to avoid shutting down oil wells and permanently reducing the country’s production capacity. A senior Russian official recently hinted that the country would not sell oil below 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’s basically assuming that Russia is going to say, ‘Oh, OK, I can’t get that price, 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 blunt speech that the cap would be set at about half the current price of Russian oil, Japanese media reported.

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

While the oil price cap has since gained traction, the political and practical hurdles to its implementation may ultimately prove too great. One of Ms Yellen’s previous international achievements, the global tax treaty agreed in principle by more than 100 countries, has yet to be implemented as it has been caught up in complicated political dynamics in the EU and US Congress.

For the oil price cap to work, the U.S. would have to re-establish a grand international coalition to adhere to it. This would require convincing the 27 members of the EU to adjust elements of their recent sanctions package, which itself has been the subject of weeks of difficult negotiations. And while India and China could benefit from lower Russian oil prices, some analysts expect they may be reluctant to join a US-led crackdown on Russia. The US has reached out to many countries, including India, as part of its effort to introduce the cap, said another senior Treasury Department official.

write to Andrew Duehren at

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