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G7 and Russia: new sanctions as a vague announcement

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analysis

To: 06/28/2022 18:21

The G7 countries were unable to agree on tougher economic sanctions against Russia. They simply underline the intention to further reduce Russia’s income. But what does this mean concretely?

By Notker Blechner, tagesschau.de

Gold embargo, Russian oil price cap – US President Joe Biden has brought new sanctions options with him from Washington. The G7 countries discussed it for three days. In the end, however, no new sanctions were decided. Biden’s proposals apparently went too far for the European Union.

Nevertheless, the heads of state and government of the seven major Western industrialized countries are determined to maintain sanctions against Russia. “We will reduce Russia’s income,” reads the final statement from the G7 countries.

Gold embargo talks

What this actually means remained open – also in the case of gold. French President Emmanuel Macron has come out in favor of an export ban on Russian gold. The gold embargo will come, the president said on the sidelines of the summit.

However, EU states have not yet been able to come to terms with this. Because the sanctions must be decided unanimously by the 27 Member States of the EU. At the G7 meeting in Elmau, the United States, Britain, Canada and Japan supported an export ban on Russian gold.

Russian oil price cap under review

US President Biden’s second attempt has also failed so far. According to the final statement, the price caps he proposed for Russian oil should be reviewed. There should be negotiations with other countries to apply it. Scholz and Macron spoke of a very difficult task.

A suitable price has to be found, according to EU circles. It must be designed in such a way that Russia wants to continue selling oil without further enriching the country. In addition, it must be ensured that the industry does not suffer any disadvantages and supports the measure, a high-ranking European diplomat told the “Handelsblatt”.

At the beginning of June, the EU decided on an oil embargo which should take effect at the end of the year. Since then, oil prices have risen around the world – much to the chagrin of the US government. Due to high raw material prices, Russia generates record revenues. According to experts, oil revenues should increase by a good third to reach 300 billion euros this year. US President Biden wants to prevent this.

Putin’s costs of war set to rise

In Elmau, Chancellor Olaf Scholz reiterated the goal of exerting even more economic pressure on Russia. “We will continue to maintain and increase the economic and political costs for President Putin and his regime,” the SPD politician said.

In order to reduce Russia’s revenue from energy exports, the G7 countries also want to limit transportation options for Russian oil. The background is that emerging countries like China and India have dramatically increased their imports of Russian oil since the start of the war in Ukraine. Scholz called on China not to undermine international sanctions imposed on Russia. “And we insist on that in all the discussions we have,” he said after the G7 summit.

US bans imports of Russian gold

The US government announced new sanctions against Russia after the G7 summit. For example, gold imports from Russia are prohibited in the United States. Washington also wants to sanction companies around the world that undermine existing Western sanctions against Russia. The White House announced that the companies would also have to be listed on the stock exchange and that they will no longer be allowed to buy American technology in the future. It could also affect Chinese companies. The United States also plans to increase import duties on 530 product groups from Russia.

At Elmau Castle, participants in the G7 meeting highlighted the effectiveness of Western sanctions. A US official pointed out that the fact that Russia is now close to defaulting is the result of drastic sanctions. US exports to Russia fell 97%. Factories in Russia have struggled to maintain production. Russian economic output will likely fall in double digits this year. Restricted access to Western technology is setting Russia’s economy back many years, Chancellor Scholz said in the ARD.

Economists back oil import tariffs

Economists doubt that a cap on oil prices can really work. Such a price cap would only be effective if all major customers participated in it, said Karen Pittel of the ifo institute in the “Handelsblatt”. But this is not predictable in China and India.

Several experts, such as researchers from the Kiel Institute for the World Economy, advocate tariffs on Russian oil and gas as an alternative. “A tariff reduces Russia’s revenue and increases G7 revenue, which means the burden of high energy prices on citizens can be cushioned,” said trade researcher Alexander Sandkamp. Economist Veronika Grimm also sees an oil tariff as a “much better option”.

Criticism of a possible gold embargo

There are similar objections to a gold embargo. According to Thorsten Polleit, chief economist at Degussa Goldhandel, a ban on Russian gold imports would not shake the precious metals market. Not every country involved in the gold trade would support such a ban, he told the “world”. Gold’s popularity could then even increase in emerging markets like India and China, which would support prices.

Many German private investors could suffer from this, as it would then be even more difficult to obtain physical gold. In recent months, there have been repeated bottlenecks in parts and bars – due to disrupted supply chains. Gold buyers had to wait a long time for their precious metal and sometimes had to pay large premiums.

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Source www.tagesschau.de

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