U.S. Treasury Secretary Janet Yellen said bringing down rising prices will be Washington’s top priority as inflation is “unacceptably high.”
Her Thursday remarks in Bali, Indonesia, were made prior to a meeting of finance ministers from the Group of Twenty.
The federal Bureau of Labor Statistics revealed yearly inflation rose 9.1 percent over the previous year, the fastest pace for inflation since November 1981.
“We’re first and foremost supportive of the Fed’s efforts,” Yellen remarked during the Bali news conference, “what they deem to be necessary to get inflation under control.”
“Beyond that, we are taking our own steps, which we believe will be supportive in the short term to get inflation down,” she added, “particularly what we’re doing on energy prices and the Strategic Petroleum Reserve.”
“And also the work that we’re doing to institute the price cap on Russian oil and to avoid potential future spikes in oil prices.” Yellen was referring to a scheme designed by Biden administration officials to build a buyer cartel that will refuse to buy Russian oil above a certain price.
The administration believes that the Russians will continue to ship oil at the drastically lower prices being bandied about. The treasury secretary believes that any price above the Russian’s cost of producing the oil would be acceptable in the belief they will take some profit over no revenue.
According to reports from think tanks such as the Brookings Institution, the buyer’s cartel would also reduce the amount of potential harm from a new European sanction. In their latest zeal to punish the Russian Federation, the European Union and Britain have sanctioned cargo ships and the companies that insure them, on vessels carrying cargoes of Russian oil.
An unintended consequence of the latest insurance sanction may be oil skyrocketing from its current level around $100 per barrel to more than $200 per barrel. And, as long as India and China continue to buy record levels of discounted Russian oil, the sanction may boomerang and hurt the energy-starved European countries more than it does Russia.
Under Yellen’s plan, the insurer’s would not risk sanctions on oil cargoes where the price paid Russia was under the proposed cap of around $50 per barrel.
Of course, there is always the risk that Russia may decide it is not interested in selling oil for $50 per barrel and caps its oil wells. It will impact their ability to reopen some fields in the future, but Russia has shown a willingness to use energy as a weapon. It shut off natural gas supplies to Bulgaria, Finland and Poland. It later reduced the amount of gas it delivered to Germany, France and Italy by as much as 60 percent.
The Russians may lose money but they may see that as a small price to pay for wreaking havoc on world energy prices that will likely send many European countries into a recession this year.
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