Secretary of the US Treasury Department Janet Yellen remarked on Thursday that putting a ceiling on the price of Russian oil will be necessary to help bring inflation down. This week, consumer inflation reported in the US reached 9.1 percent in June, marking a new 40-year high.

Ahead of the meeting of the G20 finance heads and central bank leaders in Bali, Indonesia, Yellen stated that efforts must be frittered away to rationalize two significant economic ramifications from the Russia-Ukraine turmoil. These “fallouts” are high fuel prices and soaring food insecurity, both of which are pervasive across the US and the rest of the world. Yellen’s comments were made before the meeting began.

She went on to say that the significant increase in energy cost was a major contributor to the recent jump in inflation in the US.

“We’re seeing negative spillover effects from [the Russia-Ukraine] war in every corner of the world, particularly with respect to higher energy prices, and rising food insecurity. A price cap on Russian oil is one of our most powerful tools to address the pain that Americans and families across the world are feeling at the gas pump and the grocery store right now.”

The United States would continue dialogues with other nations to determine “what they can do together” to aid people worldwide who the hostilities in the Russia-Ukraine conflict have victimized. She further said that this entails devising and enforcing a price ceiling for Russian oil and discussing the undernutrition problem.

The price of oil has skyrocketed due to sanctions placed on Russian crude by the US government and measures by European nations to reduce their reliance on Russian energy. Following the cessation of war between Russia and Ukraine in March, the price per barrel of crude oil climbed to more than $120. In the US, administration policies have throttled oil domestic production while US refining capacity has decreased as well. Refiners and oil exploration companies are not willing to risk capital to expand production and finding new sources for oil when they face additional regulatory burdens from the government. 

Economic experts have admonished that such prohibitions might drive prices as high as $175 per barrel, which would be unsustainable, the media report said.

The Treasury Secretary stated that global prices would likely be substantially “higher” without the price ceiling because the embargo would play a part in a considerable reduction in Russian oil exports.

Last month, the US discussed the possibility of lowering the price of Russian crude oil. The pricing strategy being considered was $40–$60 per barrel. However, because it would require collaboration and coordination from Russia and Russia’s allies, who have been obtaining massive discounts on crude as western countries forgo Russian resources, industry analysts have been “skeptical” that such an agreement could materialize.

The Historic Sanction

The European Union has reaffirmed that it will restrict all oil imports from Russia transported by sea by the end of this year. This will allow fuel to continue to be distributed via pipeline, with European leaders characterizing this as a “temporary measure” because countries like Hungary and Slovakia rely on it. This restriction will force Russia to use land pipelines that run through Ukraine and come with transit fees that Russia must pay to Ukraine to move that oil and gs through their territory.  The now suspended Nord Stream II pipeline built by Russia would have used the sea floor in the Baltic to bypass Ukraine and those fees connecting to a terminus in Germany. 

It has been challenging to get a consensus on other measures, such as an import ban. The European Union has also committed to reducing the amount of gas it acquires from Russia by two-thirds within the year.

In addition to these limits imposed by the EU, the United States has placed an absolute prohibition on importing oil and gas from Russia. As a result, the United Kingdom will discontinue its oil imports from Russia by the end of this year.

With the emergence of cutting ties with its fuel importation from Russia, questions are being asked whether the sanctions will work or worsen the economic scenario of countries involved in the dilemma. The European Union has warned that the most recent round of sanctions could reduce the quantity of oil it purchases from Russia by as much as 90 percent. But conversely, it will take several months before all these sanctions fully enter into force, and even after they do, the report added that Russia will still be able to sell its oil to other countries worldwide.

China’s POV

China suggested that the price ceiling could exacerbate the Ukraine situation. On Thursday, the Chinese Ministry of Commerce stated that putting a limit on the price of Russian oil is a “very complicated issue” and that the promotion of peace negotiations among the many parties involved is a necessary prerequisite for achieving a resolution to the conflict in Ukraine, Reuters added in its report.

“It’s in the interests of all parties to push the situation of the Ukraine crisis to cool down, not to heat it up,” a spokeswoman for the Chinese Ministry of Commerce, Shu Jueting, said.