G7 Leaders Work to Punish Russia Over Ukraine War

TELFS, Austria – Leaders of the Group of 7 nations on Sunday said they would stop buying gold from Moscow and discussed a new American proposal to undercut its oil earnings, even as Russian forces fired for the first time in weeks rained down rockets on Kyiv. The duel escalation underscored how the war in Ukraine has engulfed world politics and the world economy.

President Biden and the British government said members of the Group of Seven – Canada, France, Germany, Italy, Japan, Britain and the United States – would seek a ban on imports of Russian gold on Tuesday. Representatives of the assembled countries also negotiated an agreement to buy Russian oil only at a deep discount.

American officials see both the gold import ban and the potential oil price cap as ways to erode key revenue streams for Moscow’s war effort and further isolate it from the international financial system. Such a push was a theme of the meeting, both publicly and behind the scenes, as leaders sought to show solidarity with Ukraine. On Monday the President of Ukraine Volodymyr Zelenskyy will speak at the summit.

As fighting in Ukraine enters its fifth month, leaders of the countries of the Group of Seven – the world’s wealthiest major democracies – are trying to maintain unity against Russia amid the war’s growing toll on the world economy. Western sanctions meant to cause Russia pain have sent food and energy prices skyrocketing around the world, even as Moscow’s war machine shows little sign of slowing down.

Russia appeared to send a message of defiance to G7 leaders on Sunday morning when it fired a fresh volley of rockets at a Kyiv apartment building, killing at least one person. The top three floors of the nine-story building were reported destroyed. Rescuers were able to pull a 7-year-old girl from the rubble, but her father was killed and her mother, a Russian citizen, was injured, authorities said.

Russia also escalated its use of cruise missiles over the weekend, launching dozens of strikes on targets across the country. In addition to the attack in Kyiv, explosions were reported in the northeastern city of Kharkiv on Sunday and air raid sirens could be heard in several other cities.

“It’s like a nightmare,” said one woman as she watched the Kyiv apartment building burn. “When will it end?”

At the welcoming ceremony for the G7 summit in the Bavarian Alps on Sunday, Mr Biden gave a succinct answer to a reporter asking about the Russian strike. “It’s more their barbarism,” he said.

Chancellor Olaf Scholz also condemned the attacks, saying they reflected the “brutal” nature of Russia’s war against Ukraine. He assured Germany’s solidarity in presenting a unified front against Moscow.

Before a working lunch, Prime Minister Boris Johnson of Britain and Prime Minister Justin Trudeau of Canada were overheard by reporters taunting Russia’s President Vladimir V Putin and joking that they should take their shirts off – a jab at Putin’s penchant for shirtless riding.

The first step in renewing the group’s solidarity came before the official start of the summit with the announcement of a ban on gold imports from Russia.

Russia is one of the world’s largest gold producers, and the metal is its second most important export after energy products. Most of these exports go to the G7 countries, particularly the UK, via the gold trading hub of London. Russia has nearly $19 billion in gold exports in 2020, almost all of it going to the UK.

Gold sanctions are followed by extensive moves to slash Russia’s export earnings.

The United States has banned oil and gas from Russia, and Europe will ban most Russian oil while reducing gas imports by the end of the year. The United States, the European Union and their allies have also imposed sanctions on Russian officials and other members of the elite, and fined Russian banks, airlines and other companies.

But while Russia’s oil exports have fallen precipitously under sanctions, its revenues from oil sales have risen, a function of rising fuel prices. And consumers around the world are grappling with increasing pain at the pump. This combination has led G7 leaders to look for ways to both reduce Russian revenues and ease the pressure on energy prices that has contributed to high global inflation.

Janet L. Yellen, the US Treasury Secretary, has privately told foreign leaders that the best way to achieve both goals would be to introduce a so-called price cap on Russian oil sales to Europe, effectively allowing Moscow to sell more oil on the world market, but derive far less income from it.

Leaders are yet to fill out the details on how this approach could work, but it could work in line with existing sanctions as Europe’s export ban is phased in over several months, but the price cap could come online much quicker.

Supporters of the idea, including some senior business figures in Ukraine, say it would persuade other nations currently buying Russian oil at a discount, such as India and China, to demand even lower prices from Moscow.

“The Russians have been quite cynically manipulating the gas markets and, to the extent they could, the oil markets, so this would be a chance to turn the tables,” said Simon Johnson, an economist at the Massachusetts Institute of Technology and an adviser to the Russian Tanker Tracking Group.

“I’m not aware of any other active idea that would affect Putin’s fossil fuel revenues over the next five months,” he said.

Ms Yellen has told foreign leaders that such a cap would be the best thing they could do now to minimize the chances of a global recession, according to people familiar with the talks, because it would help stabilize the global oil market and help to mitigate the risk of further price increases.

The plan could prove ineffective, especially if the price cap is set too low. Russia could refuse to sell at an extreme discount and instead pay to cap wells and limit oil production. India and China could continue to pay more for oil than European nations, giving Mr Putin more revenue.

Some European leaders, including Germany, have opposed the idea but appeared warm to it at the summit. A Biden administration official told a reporter Sunday that staffers would continue to discuss the idea on the sidelines.

Russia wasn’t the only global adversary to draw the attention of leaders on Sunday. Late in the afternoon, they unveiled a plan to invest in infrastructure projects in less affluent countries around the world, an initiative designed to counter China’s growing influence through its Belt and Road Initiative.

The announcement came a year after Mr Biden urged his fellow leaders at a G7 meeting to act boldly to combat China’s growing influence in Latin America, Africa and parts of Europe, and it was a notable deviation in tone at a meeting that largely focused on Russia’s war in Ukraine.

On Sunday, however, it was unclear whether Mr. Biden and his colleagues would actually provide anywhere near enough money to match the scale of China’s years-long effort.

Biden administration officials said the effort would aim to mobilize $600 billion in the G7 countries to help less affluent countries fund spending on a wide range of projects including low-carbon energy, child care, advanced telecommunications, water and sanitation modernization, vaccine deployment, and more. Mr. Biden said $200 billion of the pledge would come from the United States.

An administration official told reporters the program will prioritize investment in projects that could be completed quickly and efficiently – and that meet strict labor and environmental standards. Officials also tried to rate the new program as much more likely to help emerging markets achieve faster and more sustainable economic growth than Chinese loans, which the government has described as “debt traps” for poorer countries.

But much of the G7’s pledged money announced on Sunday is not direct government spending. It’s a mix of public money and private money that may not materialize.

Valerie Hopkins contributed reporting from Kyiv, and Melissa vortex from Garmisch-Partenkirchen, Germany.