Indrawati: US oil price cap effort may backfire

THE Biden administration’s push to impose a price cap on Russian oil exports creates a precedent that could affect other commodities and may worsen global economic anxiety, said Indonesian Finance Minister Sri Mulyani Indrawati (picture). 

“When the US is imposing sanctions using economic instruments, that creates a precedent for everything,” Indrawati told Bloomberg News in an interview on Oct 11. “And that’s going to create uncertainty — not only for Indonesia, for all other countries.” 

Indonesia, a major commodities exporter, has been among the countries that remain unpersuaded by the price cap argument. 

Indrawati also said price cap efforts likely played into a recent decision by Saudi Arabia and its OPEC+ allies to cut oil production, which disappointed US President Joe Biden and undermined White House efforts to lower global energy prices before crucial midterm elections. 

“The Saudi and OPEC response to this is because of exactly that,” Indrawati said. 

She added that she spoke to Saudi officials who told her that, once a price cap establishes a precedent of using commodity prices for geopolitical goals, then no one knows which country could be next. 

The US is trying to gain support for a price cap on Russian oil to deprive Moscow of energy revenues to finance its invasion of neighbouring Ukraine — a conflict that has sent energy and food prices soaring. But while Group of 7 (G-7) nations have supported the effort, other countries such as India and China remain large purchasers of oil, while a number of developing countries have declined to take a firm stand against Russia. 

US Treasury Secretary Janet Yellen spoke to Indrawati earlier on Oct 11 on the sidelines of the annual meetings of the International Monetary Fund and World Bank in Washington and highlighted the price cap’s economic benefits for Indonesia, among other topics, according to Yellen’s press office. 

Indonesia left the OPEC cartel after becoming a net importer of petroleum. But it is a major exporter of commodities like natural gas, coal, nickel and palm oil. 

As a result, any other price caps would threaten the country’s economic health. Indonesia has so far this year benefitted from a fiscal windfall from rising commodity prices that has helped insulate it against the effects of a stronger dollar and higher borrowing costs now causing turmoil in other emerging economies, Indrawati said. 

The veteran finance minister — whose country is hosting the G-20 summits this year — said it’s been challenging to navigate the planning of a series of international meetings amid global turmoil over the Ukraine war. Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov both attended a G-20 foreign ministers’ meeting in July, and both Biden and Russian President Vladimir Putin are expected to attend the leaders’ summit in November. 

But Indrawati warned that US efforts to go beyond sanctions and hit Russia with a price cap could have unforeseen consequences. 

“The war is no longer just a military war — I think that’s really changed the landscape of geopolitics, diplomacy and economic relations,” she said. “That’s really another thing that we haven’t digested yet. What does it mean for the global economy?” — Bloomberg