Russia’s President Vladimir Putin visits a Rosneft refinery in the Black Sea town of Tuapse in southern Russia October 11, 2013.
G7 countries are readying price controls as a way to dent Putin’s war funding and lower energy prices.
The tool — last used by the US in the 1970s — would set an artificial limit on the price of Russian oil.
Price caps have curried new favor in recent weeks, but they risk worsening inflation in the long term.
Seven of the world’s most powerful countries are dusting off a five-decade-old economic tool in their latest bid to kneecap Russia’s critical energy sector.
The tactic is called price control. Its effectiveness is up for debate, and some economists fear the move could have some serious blowback.
The Group of Seven — Canada, France, Germany, Italy, Japan, the United Kingdom, and the US — agreed on Friday to set a price cap for Russian oil, the group’s finance ministers said in a statement. The limit will allow the group to only purchase Russian crude oil and petroleum at a yet-to-be-announced price or below it, effectively creating a buyers’ cartel and capping how much cash G7 nations will pay the Kremlin for its oil. As the finance ministers put it, the measure will “reduce Russian revenues and Russia’s ability to fund its war of aggression.”
The move follows a similar pledge by the European Commission to overhaul the EU’s electricity market with emergency measures. Electricity prices have spiked throughout the bloc, due in part to Russia’s cutting off of natural gas to western Europe.
The revival of price controls signals a significant pivot from the economic status quo of the last several decades. And just as Russia’s invasion of Ukraine has rattled the decades-long trend toward globalization, the economic war between the West and the Kremlin is changing the way governments are fighting inflation.
Reviving price controls after a half-century hiatus
Price controls were last adopted across the world’s biggest economies in the 1970s. US President Richard Nixon froze wages and prices for 90 days in 1971 to fight what later became the inflation crisis of that decade. State governments have also used their own price controls to avoid price gouging by companies. Hawaii temporarily capped gasoline prices in 2005 to counter large price hikes, and California’s own anti-gouging laws kicked in during early coronavirus lockdowns.
Yet while price controls have been put to use in selective recent …read more
Source:: Business Insider