Russia's military assault on Ukraine is wreaking havoc on energy markets, dragging U.S. and European leaders into an economic quagmire that is upending plans to address climate change. Just one example: Leaders of the wealthiest industrial democracies released a statement today that watered down earlier commitments to divest from fossil fuels, reports Sara Schonhardt. They also called for new long-term investments in producing and shipping liquefied natural gas around the world, a move that speaks to how costly it would be to cut off the Russian spigot. In one of their most attention-grabbing steps, the Group of Seven leaders who met in the Bavarian Alps agreed to seek a plan to cap the price of Russian oil. But analysts are skeptical that it's more than a rhetorical effort to wrest control of the world economy from major oil producers, with some saying it would only exacerbate the underlying problem. "It's like having too many beers at the ballpark and thinking you can drive home," said Ed Hirs, energy fellow at the University of Houston. "Somebody call them an Uber." The pitch
The novel price cap, backed by Treasury Secretary Janet Yellen, is a way to avoid a full embargo of Russian oil after major oil-consuming countries fumbled their early efforts to strip Moscow of its petroleum lever. Rather than hamstringing Vladimir Putin's regime, the embargo effort caused fuel prices to soar in the U.S. and Europe. In theory, finding ways to enforce such a price cap plan would keep Russian oil flowing, but leave the Kremlin with a lot less cash. One catch is that oil's a huge, open market. Buyers have less leverage than sellers: Saudi-led OPEC still holds enough cards to keep prices high. Here's another catch: China and India. "China's an insatiable buyer," said Tom Kloza, global head of energy analysis for Oil Price Information Service. "They may decide they're going to buy even more Russian oil." And low prices have a way of attracting customers, especially oil-dependent, price-sensitive buyers like India. "The global oil market is very fluid. It's very dynamic. It's extremely complicated," said Ben Cahill, senior fellow at the Center for Strategic and International Studies. "But if you're offering deeply discounted crude, someone's gonna buy it." Energy transition, anyone?
For Europe, the turmoil caused by Russia's invasion of Ukraine has underscored the need to transition away from fossil fuels. Some European countries say they're willing to pay higher prices. They're pushing to cut natural gas demand and promote new technologies like heat pumps. But in the U.S., the response has been mixed. President Joe Biden has backed an increase in domestic fossil fuel production to lower the price. "The signals have not been received in the same way on both sides of the Atlantic," Cahill said. Other summit reading — Our colleagues at POLITICO Europe offer this wrap-up: "A self-defeating G7 fails on all fronts."
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