G7 finance ministers on Thursday pledged to continue providing economic support to Ukraine and backed a plan that would help finance the country’s reconstruction with proceeds from Russian assets frozen by Western countries.
In a joint statement, Malian officials also condemned Hamas for its attack this week on Israel — a statement that came after a long debate over including language condemning the war between Israel and Gaza.
“We unequivocally condemn the recent terrorist attacks by Hamas on the State of Israel and express our solidarity with the Israeli people,” they wrote.
The agreement to explore using Russian money to help finance Ukraine’s reconstruction came after months of discussions between the world’s most advanced economies, which jointly froze about $300 billion in Russian central bank assets. Finance ministers expressed support for a plan that would use investment gains on those assets, without taking the legally questionable step of using the underlying assets themselves.
Treasury Secretary Janet Yellen expressed support for the plan, which would use what she called “windfall proceeds” from Russian sovereign assets frozen in certain clearinghouses and use the funds to support Ukraine.
“We reiterate our steadfast support for Ukraine and are united in our condemnation of Russia’s illegal, unjustified and unjustified war of aggression against Ukraine,” they wrote.
The world’s top economic policymakers gathered in Morocco this week for the annual meetings of the International Monetary Fund and World Bank, a gathering overshadowed by geopolitical crises that have caused huge humanitarian and economic costs.
Before the attack on Israel, the meeting was expected to focus on continuing to punish Russia for its war in Ukraine. On Thursday morning, the G7 pledged to be more stringent in implementing the measures it took to put pressure on the Russian economy, saying it was “committed to confronting any attempts to evade and undermine sanctions measures.”
As part of this toughened approach, the United States imposed sanctions on two shipping companies on Thursday for violating an oil price cap imposed by the Group of Seven nations to deprive Russia of energy export revenues. These were the first sanctions of their kind to be imposed amid growing concerns that the policy has been eroded by evasion and loopholes.
The sanctions were announced at a time of renewed concern about global energy prices following a Hamas attack on Israel over the weekend that threatens to spiral into a regional conflict. The price cap was put in place late last year to prevent Russia from profiting from rising energy prices by limiting its ability to sell oil using Western insurance and financing.
The cap is set so that Russian oil cannot be sold for more than $60 per barrel if these services are used. It was designed to ensure the continued flow of Russian oil but at a deep discount, to starve Moscow of the revenue needed to finance its war.
The Treasury Department sanctioned Lumber Marine, a UAE shipping company, for transporting crude oil at more than $75 per barrel from a Russian port after the cap was put in place. It also imposed sanctions on Ice Pearl Shipping, a Turkish shipping company, for transporting Russian crude oil at a price exceeding $80 per barrel.
Adding them to the US sanctions list could interfere with the two companies’ ability to participate in global oil trade.
“Today’s action demonstrates our continued commitment to reducing Russia’s resources for its war against Ukraine and imposing price caps,” Deputy Treasury Secretary Wally Adeyemo said in a statement.
The announcement has been described as a new phase in the implementation of the price cap, albeit a small step given the extent of evasion that many energy analysts suspect is taking place.
“The administration’s action today to cap Russian oil prices was limited, but it represents a start,” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions. He added: “I think the Biden team is calibrating the response very carefully to ensure that prices in the oil market are not inadvertently raised.”
The G7 is closely monitoring how oil markets respond to the price cap. The group viewed it as a success largely because oil prices did not rise, and officials believe that Russian oil profits were eroded because the Kremlin was forced to invest in a “shadow” fleet of ships and alternative financial service providers.
US officials are warning shipping companies of potential violations.
“We will not tolerate evasion, and we are monitoring this closely,” she added. Yellen told the New York Times in an interview this week. “To the extent that there is evasion, we certainly need to take action to deal with that, and you should expect us to do that.”
Finance ministers and central bank governors at the meeting were preoccupied with concerns that multiple crises could derail their efforts to combat inflation while avoiding a recession.
“The global economy has entered difficult times,” Bruno Le Maire, French Finance Minister, said on the sidelines of the meetings on Thursday. “Geopolitical risks are the most important risks facing the global economy.”
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