The Riverside Press-Enterprise
Gas shock fears sparks Russian oil price cap plan
WASHINGTON » Relief at the gas pump coupled with this past week’s news that businesses continue to hire at a blistering clip have tempered many economists’ fears that America is heading into a downturn.
But while President Joe Biden’s top aides are celebrating those economic developments, they are also worried the economy could be in for another serious shock later this year, one that could send the country into a debilitating recession.
White House officials fear a new round of European penalties aimed at curbing the flow of Russian oil by year end could send energy prices soaring anew, slamming already beleaguered consumers and plunging the United States and other economies into a severe contraction. That chain of events could exacerbate what is already a severe food crisis plaguing countries across the world.
To prevent that outcome, U.S. officials have latched on to a never-before-tried plan aimed at depressing global oil prices — one that would complement European sanctions and allow critical flows of Russian crude onto global markets to continue, but at a steeply discounted price.
Europe, which continues to guzzle more than 2 million barrels of Russian oil each day, is set to enact a ban on those imports at the end of the year, along with other steps meant to complicate Russia’s efforts to export fuel globally. While Biden pushed Europe to cut off Russian oil as punishment for the country’s invasion of Ukraine, some forecasters, along with top economic aides to the president, now fear that such policies could result in huge quantities of Russian oil — which accounts for just less than one-tenth of the world’s supply — suddenly taken off the global market.
Analysts have calculated that such a depletion in supply could send oil prices soaring to $200 per barrel or more, translating to Americans paying $7 a gallon for gasoline. Global growth could slam into reverse as consumers and businesses pull back spending in response to higher fuel prices and as central banks, which are already raising interest rates in an effort to tame inflation, are forced to make borrowing costs even more expensive.
The potential for another oil shock to puncture the global economy, and perhaps Biden’s reelection prospects, has driven the administration’s attempts to persuade government and business leaders around the world to sign on to a global price cap on Russian oil.
It is a novel and untested effort to force Russia to sell its oil to the world at a steep discount. Administration officials and Biden say the goal is twofold: to starve Moscow’s oil-rich war machine of funding and to relieve pressure on energy consumers around the world.