oecd secretary general mathias cormann
OECD secretary-general explains global cost of the Russian oil embargo
03:18 - Source: CNN
New York CNN Business  — 

Europe and the United States have barred the import of Russian oil to cut off a crucial revenue source for the Kremlin. But the plan to pile pain on President Vladimir Putin, forcing him to reconsider his war in Ukraine, hasn’t worked.

Russia is making just as much money from energy exports as it was before it invaded in late February. Meanwhile, inflation is surging globally, adding to political pressure on leaders such as US President Joe Biden, British Prime Minister Boris Johnson and French President Emmanuel Macron.

As leaders from top economies gather in Germany on Sunday for a G7 meeting, they’ll try to reach a consensus on what to do next. Unfortunately, on oil, few good options are available.

Several measures are being discussed, from price caps on Russian energy imports, centralized purchasing by the European Union, insurance bans on ships and targeting countries that continue to buy from Moscow. They all have downsides, and some could push prices even higher — risking popular support for the West’s resolve to punish Putin.

“There are tools available to go harder after Russia, but they come with significant costs directly to consumers in the US and Europe,” said Robert Johnston, an adjunct senior research scholar at the Columbia Center for Global Energy Policy.

Imposing sanctions on countries that continue to scoop up large volumes of Russian crude oil, including China and India, would wreak havoc on global markets that are already under severe strain. And while Treasury Secretary Janet Yellen recently said the United States wants to discuss a cap on the price of Russian oil, such a complex mechanism may not be the fix the West is looking for.

“It distorts the market at a time when the market certainly needs to function well, and there are too many workarounds,” Johnston said.

Russia keeps cashing in

The United States, the United Kingdom and Canada have announced bans on Russian oil imports. More significantly, Europe will follow suit for Russian oil it imports by sea, a huge step given its longstanding reliance on Russia’s energy supplies. The bloc says the ban will apply to 90% of Russian oil imports by the end of the year.

European customers have already pulled back. Russian oil exports to Europe dropped to 3.3 million barrels per day in May, falling by 170,000 barrels per day compared to the previous month, according to the International Energy Agency.

But an uptick in exports to Asia helped make up for a large chunk of those losses. China — taking advantage of huge price discounts — saw its imports reach 2 million barrels per day for the first time. India’s imports have also spiked, hovering near 900,000 barrels per day in May.

“We are actively engaged in reorienting our trade flows and foreign economic contacts towards reliable international partners, primarily the BRICS countries,” Putin said Wednesday, referring to the bloc of developing economies that also includes Brazil, India, China and South Africa.

India has been buying a lot more Russian oil this year.