U.S. and European allies are about to launch efforts to limit Russia's oil profits

STEVE INSKEEP, HOST:

The United States and its allies hope they can finally find a formula to choke off Russia's funding of its war in Ukraine.

A MARTÍNEZ, HOST:

Russia's economy depends on selling oil. Next week, Europe plans to stop buying it for the most part. Europe also has a plan that would make it harder for Russians to sell it to anybody else. Therein lies the rub because Russian oil is part of the global supply. So how can the world block it without a massive rise in prices?

INSKEEP: NPR's Jackie Northam is trying to figure this out. Jackie, good morning.

JACKIE NORTHAM, BYLINE: Morning, Steve.

INSKEEP: How would the plan work?

NORTHAM: Well, you know, this is part of a sanctions package that the European Union passed in June. And what it's going to do, as you say, is going to ban any seaborne imports of Russian oil, and that's the majority that Europe buys. And if you remember, before the war, Europe was Russia's largest customer...

INSKEEP: Yeah.

NORTHAM: ...And it's been trying to wean itself off ever since. But, you know, there's another part of the sanctions package, Steve, and that's banning all European maritime services on any tankers carrying Russian oil. And by that I mean insurance, financial services, shipping, anything like that. Ninety percent of the world's maritime services are European or are based in the U.K. So this ban would virtually stop tankers worldwide from carrying Russian crude.

INSKEEP: Wow.

NORTHAM: And you can only imagine what these two bans, you know, if they came into place, what that would have done to prices. So the U.S. has stepped in to just try to soften the blow of these bans.

INSKEEP: Soften the blow. But the U.S. also would like to cut off Russian oil profits, of course. So what's the alternative?

NORTHAM: Right. So the U.S. Treasury Department developed the idea of a price cap, and it's never been tried on oil before. And the other G-7 nations and the EU have signed on to this plan. And what it does is it allows tankers to carry Russian crude if it's at or less than a price cap that's being set by the G-7 and EU. And that will allow Russian oil to continue to flow around the world but at a reduced price. The challenge right now is figuring out what that price will be. And EU members cannot agree on one. And, you know, all this has to be figured out by Monday, when the EU's bans on oil insurance are due to kick in.

INSKEEP: OK, let's assume they figure out the details. They figure out a price. They use this leverage of insurance to say, you can't carry oil, Russia, unless you charge such a low, low price you don't have any money for your war in Ukraine. Is this going to work?

NORTHAM: Yeah, you know, on paper it looks pretty good. But there are some loopholes. First of all, not all nations are signing on to - you get powerhouses like China, India and Turkey. They've been on a buying spree of, you know, very cheap Russian crude since the war began. And I spoke with Ben Cahill. He's an energy specialist at the Center for Strategic and International Studies here in D.C. And he said countries like China and India are wary of joining in.

BEN CAHILL: I think there's also some irritation with Western sanctions and the idea that, you know, the U.S. and the EU are really pushing countries to do this, and they're interfering with the global oil market.

INSKEEP: OK, so they're irritated, Jackie, but you said that Europe controls the insurance industry for the most part. They can block these tankers from moving by refusing them insurance. How could China or India do business with Russia, even if they want to?

NORTHAM: Well, Russia's trying to set up its own insurance system and there's - you know, trying to put its own tankers out on the waters. They could try to trade oil illicitly, and that happens a lot already. The other thing is President Vladimir Putin is threatening not to do oil business with any country participating in this price cap. But, you know, Steve, he needs this oil to fund his war in Ukraine. But, you know, you cannot take his threats lightly.

INSKEEP: Because he could do something that causes the price of oil around the world to shoot up.

NORTHAM: Exactly.

INSKEEP: Jackie, thanks so much.

NORTHAM: Thanks, Steve.

CAHILL: That's NPR's Jackie Northam. Transcript provided by NPR, Copyright NPR.