G7 nations propose oil price cap amid Russia’s ongoing invasion of Ukraine

Yahoo Finance Live anchors discuss G7 leaders proposing oil price caps as the Russia-Ukraine war continues.

Video transcript

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AKIKO FUJITA: We are beginning this hour though with the gathering of G7 nations in Germany, where Russia and Ukraine continue to top the agenda, Brian. That is what we're watching very closely this morning. The world's wealthiest countries vowing to stand with Ukraine for as long as it takes, those are their words.

Also considering some new measures to punish Russia, including implementing a price cap on Russian oil as the war in Ukraine persists. And Brian, we're talking about this, of course, the backdrop is that despite the sanctions that Western countries have put in place against Russia, Russia is still profiting off of oil. We talk about all of those high gas-- oil prices, well, Russia is getting the benefits of that as well, largely, because they've found buyers in China, as well as--

BRIAN CHEUNG: India I believe.

AKIKO FUJITA: India.

BRIAN CHEUNG: Yeah.

AKIKO FUJITA: So what we're talking about now is a global price cap for Russian oil shipments. Essentially means that there would be a formation of a global buyer cartel, kind of like when we look at OPEC when we say it's a cartel, this would be a buyer cartel. It would only allow the transportation of Russian oil to be sold below an agreed price threshold. Western governments looking to impose that price cap that tells buyers yes, you can keep using that insurance and continuing to buy, but only if that goes-- that remains under a price that they've set. Still far from set by the way.

BRIAN CHEUNG: Yes.

AKIKO FUJITA: There's still going to be a lot of disagreements--

BRIAN CHEUNG: Yeah.

AKIKO FUJITA: --among the G7 nations. That's still getting hammered out. But it's an interesting new tool that they're trying to introduce.

BRIAN CHEUNG: Yeah, and the G7 meetings you know, as underscored by the fact that they beamed in Volodymyr Zelensky, the president of Ukraine, showing that they're all in solidarity in terms of where they stand on the Russia-Ukraine conflict. But the subject of an oil price cap itself is going to be not only a difficult thing politically to get agreement among all those seven nations but also difficult to likely implement as well.

We don't have any details on exactly how they would enforce this cap because a lot of the OPEC nations are not part of the G7. But look, at the end of the day, we've seen the White House say that at least from the US side of things, they do support that cap, knowing that inflation is not only an issue in the United States but that this is likely an issue that's going to appeal to the European nations as well, where in the United Kingdom and the eurozone nations, they've all seen prices across the board increasing at you know, really eye-popping rates because of the increase in energy.

AKIKO FUJITA: Well, and the big question mark is also how Russia responds. In sort of this perfect scenario that the White House sees, when you bring the prices down, that brings Russia's supply down, essentially, it doesn't make sense for Russia to continue selling at that price. That's what they're hoping for but we still don't know how Russia will react on that front. So again, I mean, this is one of those things that every country that's represented at the G7 meeting here wants to address largely because as you talk about often, Brian, inflation still a very key issue, energy a big part of that. A price cap though, will it actually work?

BRIAN CHEUNG: Again, and that does bring up an interesting point, like how effective would a price cap be on doing the ultimate goal here, which is isolating Russia? And we've already seen that there are other measures that are by the way, under discussion at this G7 meeting, like further isolating and restricting Russia's access to key industrial inputs, trying to target sanctions on Russians responsible for war crimes. Apparently, there have been Russians that have stolen Ukrainian grain and exported it for their own profit. So those are all topics of the G7 as well.

But there's also look, the Russia default question, right? We got the news yesterday that bondholders were reportedly not repaid on about $100 million in dollar euro-denominated interest payments. There is a 30-day grace period that began, the clock began at the end of May. Apparently, bondholders have not been paid as of yesterday, which means look, at the end of the day, Russia has not fulfilled its obligations to bondholders.

Now, the nuance of all this is a little complicated because in the United States, for example, the Treasury has not allowed anyone to receive payments, so Russia does--

AKIKO FUJITA: In rubles.

BRIAN CHEUNG: --in rubles. So Russia does have the money to pay it but there are obstacles to getting bondholders repaid. So a little bit of an argument over whether or not this is actually default because Russia does have the money, they just can't get the money to the bondholders.

AKIKO FUJITA: Well, and this is where the sanctions come in, right? I mean--

BRIAN CHEUNG: Right.

AKIKO FUJITA: --not being allowed to pay in rubles. But you know, I mean, it's kind of an interesting dynamic that's at play here because if you think back to what the discussion was back at the end of February with all the Western countries coming together with what would be considered one of the harshest sanctions, it was that this would bring Russia to its feet. That hasn't necessarily played out the way it was expected, whether it's on oil, or I mean, just if we're just talking about the Russian economy overall, right?

BRIAN CHEUNG: Yeah, and they've been able to prop up the Russian ruble because of the fact that they have other reserves they can lean on. Although, some sanctions may be targeted towards gold, could change that picture. But of course, right now Russia does have the money, it's just really whether or not they're being isolated in a way that could further make things worse. But we'll keep that subject there for right now.