A cap on Russian oil prices will be crucial to help bring down inflation as U.S. consumer inflation soared to a 40-year high of 9.1% this week, U.S. Treasury Secretary Janet Yellen said on Thursday.
Speaking before the start of the Group of 20 finance ministers and central bank governors meeting in Bali, Yellen said efforts must be expended to rein in two key economic fallouts from the Russia-Ukraine crisis — that is, high fuel prices and rising food insecurity which are sweeping across the U.S. and globally.
High energy costs contributed heavily to the spike in U.S. inflation this week, she added.
“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,” Yellen said.
She said the U.S. will continue conversations with other countries to see “what we can do together to help others around the world impacted by Russia’s war.” It includes addressing food insecurity, and the design and implementation of a price cap on Russian oil, she added.
“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. A limit on the price of Russian oil will deny Putin revenue his war machine needs.”
As Washington bans Russian oil and European countries look to cut Russian oil use, prices of oil have surged. Crude oil prices rose above $120 a barrel in March after the Russia-Ukraine war started.
Economists have warned that further bans could propel prices to as high as $175 a barrel.
The price cap mechanism involved the U.S. and other countries forming a cartel to buy Russian oil at a low enough price to keep Russian oil production profitable and supply forthcoming but at the same time starve Russia from being able to fund its war in Ukraine.
“We’ll build on the historic sanctions we’ve already implemented that make it more difficult for him to wage his war or grow his economy,” Yellen said.
Russia has been silent on the proposal while other countries still buying Russian oil, such as China and India, have not weighed in.