Europe first

Russia-Ukraine war will preoccupy the G7 for a long time

The recently concluded G7 summit in Bavaria highlighted the reality that the war in Ukraine will continue to preoccupy the world’s richest economies, a fact that was underscored by the Russian missile attack on a mall in central Ukraine during the meet. As the G7 leaders hunker down for a prolonged conflict, the key decisions made in Bavaria focused on handling the price, energy and food crises plus a pledge for a “climate club”. But behind the conspicuous bonhomie on display in obligatory grip-and-grin photo-ops, it is far from clear whether the G7 have workable plans to deepen the impact of sanctions on Russia. The decision that has attracted the most attention is an agreement to impose a price cap on Russian oil. The idea reflects another attempt to limit Russia’s principal source of income by tying financial services, insurance and shipping of oil cargoes to a price ceiling via a buyers’ cartel.

Moscow’s earnings from oil grew significantly after the invasion began, principally because of the sharp rise in global prices significantly softening the impact of Western sanctions. Although broadly designed on a somewhat discredited oil-for-food mechanism applied on Iraq in the mid-nineties, the price cap is already attracting controversy over its workability. Analysts have pointed out that Russian President Vladimir Putin’s response remains the big unknown in this gamble. The second unknown is whether big buyers such as India and China, both of which have opposed resolutions against Russia in the United Nations, will join this arrangement or explore alternative arrangements that work around these constraints. Indeed, the success of the G7’s attempt to rally to its cause India and four other developing nations as special invitees to the summit needs to be balanced against these nations’ geopolitical interests.  

The G7’s attempt to bridge two seemingly irreconcilable goals—to up the pressure on Russia without stoking inflation — was evident also in its $4.5-billion pledge to fight global hunger. Famine and starvation have become acute dangers as Ukrainian wheat, which feeds a significant proportion of Africa, remains stuck in Black Sea ports thanks to a Russian blockade. But activists have already criticised the pledge as being too insignificant to make a difference. The UN had estimated a bill of $2.2 billion for this year alone to tackle the crisis. No less open to doubt is the pledge to create an international “climate club” in the interests of creating a fully decarbonised power sector by 2035. This has raised some questions among developing nations, not least because it does not reflect the G7’s understanding of its own historic responsibility towards the stock of greenhouse gas emissions in the atmosphere.

Although it did soften its stance on reducing commitments on public financing of new fossil fuel projects and moving towards zero-emission mobility, these steps were driven more by the G7’s own imperatives rather than reflective of a greater understanding of developing world needs. For instance, the communique acknowledges that investments may be necessary in liquefied natural gas to phase out dependence on Russian gas. The fact that the G7 members then headed to Madrid for a Nato summit immediately after offered compelling evidence that the Ukraine crisis will remain its top priority for some years to come.