“Russia is bathing in cash,” an economist at the Institute of International Finance recently told the Wall Street Journal. This is not the kind of financial news the US and its allies were hoping for, more than six months after President Vladimir Putin attacked Ukraine and the West responded with economic sanctions, the US newspaper The Washington Post wrote in an editorial cited by Rador.

These sanctions, including unprecedented asset confiscations, were truly massive and, along with the voluntary exit of corporations from the Russian market, helped plunge Putin’s country into recession. But there is one major catch: Russian oil exports continued, and by July Moscow had earned $74 billion from them, the Wall Street Journal reported.

This is one of the reasons why the ruble actually appreciated after the February 24 invasion. Russia is now exporting slightly less oil than it did in 2021, partly because of bans by the US, Canada and the UK, but China and India – as well as European countries with no other sources – continue to buy Russian oil at generally higher prices than last year. .

In short, Russia’s oil revenues are a big reason why sanctions don’t even come close to hurting the economy on which Moscow’s military machine depends. The situation called for an innovative plan, and the G7 agreed on one: a proposal long championed by U.S. Treasury Secretary Janet L. Yellen that calls for the U.S. and other supporters of Ukraine to set a maximum price for Russian oil through a range of buyers. ‘cartel. The key to the plan is to take advantage of the dominance of British and European firms in the insurance market on which the world’s oil transport depends, by refusing to insure any Russian oil tanker carrying crude above the limit.

Russia has already threatened to cut off supplies to any country that accepts the restrictions

While Friday’s G7 announcement did not specify a specific figure, the idea is to keep the cap below the world price but above the cost of production in Russia. Thus, non-G7 countries would also be encouraged to adopt the measure, as it would mean cheaper oil for them; on the other hand, Moscow itself would be encouraged to acquiesce, since receiving a small profit from oil is preferable to the total embargo the West would otherwise impose.

The mechanism is cunning, and the idea on which it is based is ingenious: the goal is the flow of currency into Moscow’s coffers, not the flow of crude oil from its wells and ports. The obvious question is whether the US and its allies are capable of putting this into practice. Russia has already threatened to cut off supplies to any country that accepts the restrictions. The Biden administration says it’s just a bluff by Moscow — and there’s a good chance it is, given Russia’s need for money and lack of alternative sources.

Putin undoubtedly anticipated the restrictions and is trying to find ways around them through side deals and other tricks. The G7 still has many details to iron out before December, when the plan is likely to go into effect. The prospect of cutting off the flow of money to Russia without disrupting global energy markets is worth the effort.

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