U.S. Bid to Cap Russian Oil Prices Draws Skepticism Over Enforcement | Big Indy News
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U.S. Bid to Cap Russian Oil Prices Draws Skepticism Over Enforcement

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WASHINGTON — The Biden administration’s push to form an international buyers’ cartel to cap the price of Russian oil is facing resistance amid private sector concerns that it cannot be reliably enforced, posing a challenge for the U.S.-led effort to drain President Vladimir V. Putin’s war chest and stabilize global energy prices.

The price cap has been a top priority of Treasury Secretary Janet L. Yellen, who has been trying to head off another spike in global oil costs at the end of the year. The Biden administration fears that the combination of a European Union embargo on Russian oil imports and a ban on the insurance and financing of Russian oil shipments will send prices soaring by taking millions of barrels of that oil off the market.

But the untested concept has drawn skepticism from energy experts and, in particular, the maritime insurance sector, which facilitates global oil shipments and is key to making the proposal work. Under the plan, it would be legal for them to grant insurance for oil cargo only if it was being sold at or below a certain price.

The insurers, which are primarily in the European Union and Britain, fear they would have to enforce the price cap by verifying whether Russia and oil buyers around the world were honoring the agreement.

“We can ask to see evidence of the price paid, but as an enforcement mechanism, it’s not very effective,” said Mike Salthouse, global claims director at The North of England P&I Association Limited, a leading global marine insurer. “If you have sophisticated state actors wanting to deceive people, it’s very easy to do.”

He added: “We’ve said it won’t work. We’ve explained to everybody why.”

That has not deterred Ms. Yellen and her top aides, who have been crisscrossing the globe to make their case with international counterparts, banks and insurers that an oil price cap can — and must — work at a moment of rapid inflation and the risk of recession.

“At a time of global anxiety over high prices, a price cap on Russian oil is one of the most powerful tools we have to address inflation by preventing future spikes in energy costs,” Ms. Yellen said in July.

The Biden administration is trying to mitigate fallout from sanctions adopted by the European Union in June, which would ban imports of Russian oil and the financing and insuring of Russian oil exports by year’s end. Britain was expected to enact a similar ban but has not yet done so.

Ms. Yellen and other Treasury officials want those sanctions to include a carve-out that allows for Russian oil to be sold, insured and shipped if it is purchased at a price that is well below market rates. They argue that this would diminish the revenue that Russia took in while keeping oil flowing.

The plan relies heavily on the maritime insurance industry, a web of insurers that provide coverage for ships and their cargo, liability for potential spills and reinsurance, a form of secondary insurance used to defray the risk of losses. Most of the major insurers are based within the Group of 7 nations, which have been coordinating sanctions against Russia for its war in Ukraine.

Lars Lange, secretary general of the International Union of Marine Insurance, a consortium based in Germany, said he believed that even with a price cap, insurers would still be reluctant to cover Russian oil exports for fear of violating sanctions.

“This insurance industry is more than prepared to comply, but please set up the sanctions in a way that we understand and that we can comply,” Mr. Lange said. “And with this oil cap, there are challenges, at least from our side.”

Mr. Lange said the cap would not work if only a few countries agreed to it, because insurers from other countries would pick up the slack and cover the cargo at market prices.

Treasury Department officials working on the plan have been meeting with the insurance and financial services sectors to try to allay some of their concerns. They have suggested that the industry would not bear responsibility if sanctions were flouted, and that Russia and its oil customers would have to “attest” to the purchase price. Enforcing the cap, they said, would be similar to dealing with sanctions that have targeted oil exports from countries such as Iran and Venezuela.

Officials have also played down the notion that global participation is needed, arguing that countries such as India and China, which have been purchasing Russian oil at deep discounts, could benefit from a price cap without signing on to the agreement.

Leaders of the G7 agreed in late June to explore the concept. The idea drew mixed reviews after finance ministers of the Group of 20 nations met in Indonesia in July. South Korea said it was willing to get behind it, while Indonesia’s finance minister, Sri Mulyani Indrawati, warned that a price cap would not solve the world’s oil supply problems. European officials, who have been skeptical, continue to say they are analyzing its viability.

The race to carry out such a complex plan in just a few months comes as the United States struggles to deliver on international agreements such as the a global tax pact, which Ms. Yellen brokered last year but is now stalled in Congress. In recent months, Ms. Yellen has dispatched her deputy, Wally Adeyemo, and Ben Harris, her assistant secretary for economic policy, to make the case for the cap on national security and economic grounds.

Mr. Adeyemo said in an interview that “a great deal of progress has been made amongst the G7 finance ministers and energy ministers, in terms of having conversations about how we actually design this at a technical level.”

He added that “we’ve also made progress in terms of talking to other countries about joining our coalition in pulling together a price cap.”

Mr. Adeyemo said officials were working to design the cap so insurers would not have to vet every transaction to ensure compliance.

“We’ve also had very constructive conversations with members of industry who are involved in the seaborne oil trade, both helping to understand how that oil is both sold and who has information about the price,” he said. “But also how we can design a method for attestation that will be as simple as possible in order to make sure that we’re able to enforce the price cap.”

Some former Treasury officials are skeptical that the plan could work.

“I think it is a clever analytical idea, but there’s a reason why the phrase ‘too clever by half’ was invented,” said Lawrence H. Summers, who was Treasury secretary during the Obama administration.

Noting that there are scant examples of successful buyers’ cartels, and that oil transactions can be often be hidden, Mr. Summers said, “It might not be workable.”

The United States hopes to have an agreement in place by Dec. 5, when the European Union ban takes effect, but many details remain unresolved, including the price at which Russian oil would be capped.

Treasury officials have said the price would be set high enough so Russia had an incentive to keep producing. Some commodities analysts have pointed to a range of $50 to $60 per barrel as a likely target, which is far lower than the current price of around $100 a barrel.

But a big wild card is how Russia might respond, including whether it retaliates in ways that drive up prices.

The Russian central bank governor, Elvira Nabiullina, said last month that she believed Russia would not supply oil to countries that imposed a cap, and predicted it would lead to higher oil prices worldwide. Other Russian officials have suggested that the nation would not sell oil at prices below its production costs.

In a report last month, J.P. Morgan analysts predicted that if Russia did not cooperate with a price cap, three million barrels of Russian oil per day could be removed from global markets, sending prices up to $190 per barrel. Curbing output indefinitely would damage its wells, they said, but Russia could handle a shutdown temporarily while sustaining its finances.

Paul Sheldon, chief geopolitical adviser for S&P Global Commodity Insights, said a successful cap could be the best hope for stabilizing oil prices once the European Union ban took effect. He said it was unlikely that Russia, which has restricted natural gas flows to parts of Europe in retaliation for sanctions, would curb oil exports because of their importance to its economy.

“Our assumption is that Russia will not curtail production,” Mr. Sheldon said.

Brian O’ Toole, a former adviser in Treasury’s office of foreign assets control, said that even a brief shutdown of Russian oil exports could destabilize markets. But he added that Russia’s invasion of Ukraine demonstrated that it was willing to take actions that were at odds with its economic fortunes.

“This assumes that Putin is a rational economic actor,” Mr. O’Toole, a nonresident senior fellow at the Atlantic Council who works in the financial services industry, said of Russia’s cooperation with a price cap. “If that were the case, he wouldn’t have invaded Ukraine in the first place.”

But proponents believe that if the European Union bans insurance transactions, an oil price cap may be the best chance to mitigate the economic fallout.

John E. Smith, former director of the foreign assets control unit, said the key was ensuring that financial services firms and maritime insurers were not responsible for vetting every oil transaction, as well as providing guidance on complying with the sanctions.

“The question is will enough jurisdictions agree on the details to move this forward,” said Mr. Smith, who is now co-head of Morrison & Foerster’s national security practice. “If they do, it could be a win for everyone but Russia.”

Matina Stevis-Gridneff contributed reporting from Brussels.

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Air Force to unveil its new B-21 Raider stealth bomber Friday

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The U.S. Air Force and Northrop Grumman plan to unveil the latest stealth aircraft called the B-21 Raider at the company’s facility in Palmdale, California, this Friday.

“The B-21 is the most advanced military aircraft ever built and is a product of pioneering innovation and technological excellence,” Dough Young, sector vice president and general manager at Northrop Grumman Aeronautics Systems said in a press release. “The Raider showcases the dedication and skills of the thousands of people working every day to deliver this aircraft.”

Northrop was awarded a contract in 2015 to design and build the world’s most advanced strike aircraft.

The B-21 was made using advanced manufacturing techniques and breakthrough stealth technology. It is a sixth-generation aircraft, which Northrop Corporate President Tom Jones said is “optimized for operations in highly contested environments.”

The plane, according to Northrop’s website, is designed to perform long-range conventional and nuclear missions.

The estimated cost to develop, purchase and operate 100 aircraft is estimated at $203 billion, or about $2 billion per plane.

Currently, the company has six aircraft being assembled in Palmdale and the first B-21 is set to take flight sometime in 2023, depending on ground test results.

The unveiling on Friday is by invitation only.

Northrop Grumman Corp develops and manufactures advanced aircraft systems. The Aeronautics Systems segment engages in the design, development, production, integration, sustainment, and modernization of advanced management systems, weapons systems and aircraft, and mission systems.

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One Step Closer to a Universal Flu Vaccine?

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Imagine a single dose of vaccine that prepares your body to fight every known strain of influenza — a so-called universal flu vaccine that scientists have been trying to create for decades.

A new study describes successful animal tests of just such a vaccine, offering hope that the country can be protected against future flu pandemics. Like the Covid vaccines made by Pfizer-BioNTech and Moderna, the experimental flu vaccine relies on mRNA.

It is in early stages — tested only in mice and ferrets — but the vaccine provides important proof that a single shot could be used against an entire family of viruses. If the vaccine succeeds in people, the approach could be used against other virus families, perhaps including the coronavirus.

The vaccine would not replace annual flu shots but would provide a shield against severe disease and death from potential pandemic threats.

“There’s a real need for new influenza vaccines to provide protection against pandemic threats that are out there,” said Scott Hensley, an immunologist at the University of Pennsylvania who led the work.

“If there’s a new influenza pandemic tomorrow, if we had a vaccine like this that was widely employed before that pandemic, we might not have to shut everything down,” he said. He and his colleagues described the vaccine last week in the journal Science.

By the age of 5, most children have been infected with the flu multiple times and have gained some immunity — but only against the strains they have encountered.

“Our childhood exposures to influenza lay down long-lived immune memory that can be recalled later in life,” Dr. Hensley. But “we’re sort of living the rest of our life dependent on the random chance of whatever we got infected with as a kid.”

Current influenza vaccines protect against seasonal flu but would provide little protection against a new strain that may emerge as a pandemic threat. During the 2009 H1N1 swine flu pandemic, for example, the conventional vaccine offered little defense against the virus. But older adults who had been exposed to H1N1 strains in childhood developed only mild symptoms.

Scientists have long tried to create a vaccine that would introduce children to every possible strain of flu they may encounter later in life. But researchers have been constrained by technical hurdles and by the diversity of the flu virus.

Broadly speaking, there are 20 subgroups of influenza that each represent thousands of viruses. Current vaccines can target four subgroups at most. But the experimental vaccine contains all 20, and it would be faster to produce.

The vaccine elicited high levels of antibodies to all 20 flu subtypes in ferrets and mice, the researchers found — a finding that several experts said was unexpected and promising.

If the vaccine behaves similarly in people, “we’ll have a more broad coverage of influenza viruses — not only those that are circulating, but those that might spill over from the animal reservoir that might cause the next pandemic,” Alyson Kelvin, a vaccinologist at the University of Saskatchewan in Canada, said.

Packing 20 targets into one vaccine does have a downside: Antibody levels in the test animals were lower than when they were given vaccines aimed at individual strains. But the levels were still high enough to be effective against influenza.

Because a new pandemic strain of influenza might differ from the 20 targets included in the experimental vaccine, the researchers also tested it against viruses that were imperfectly matched. The vaccine still provided strong protection, suggesting that it would prevent at least severe illness, if not infection, from a novel pandemic flu virus.

This phenomenon is akin to that with the current Covid vaccines: Although the latest Omicron variants are so different from the ancestral virus that the original vaccine does not prevent infections, it continues to help safeguard most people against severe illness.

This quality may be a particular advantage of mRNA vaccines, Dr. Kelvin said. Conventional flu vaccines target only the specific viruses they are designed for. But mRNA vaccines seem to produce antibodies that defend the body against a broader range of viruses than those included.

The experts noted some important caveats and questions that must be answered before the vaccine becomes a viable candidate.

The animals in the study built defenses against all 20 flu strains equally. But “these animals have not seen flu before,” said Richard J. Webby, an expert in influenza viruses at St. Jude Children’s Research Hospital in Memphis.

Such a complete lack of immunity against flu is only true of very young children, Dr. Webby noted. Older people are exposed to many different strains over their lifetimes, and it’s not clear whether their immune responses to a universal vaccine would be quite so uniform.

“The proof of the pudding will be what happens when it goes into humans and how going into a preimmune population skews the response to it,” Dr. Webby said.

Designing universal vaccines for varying age groups, if necessary, would be a challenge. It would also be important to see how long protection from such a vaccine lasts, some experts said.

“The biggest issue about universal flu is what you need to target and how long you can continue to use the same vaccine,” Ted Ross, director of Global Vaccine Development at the Cleveland Clinic, said. “If you have to keep updating it, it may not increase the advantage of how we do vaccines today.”

The next step for the vaccine would be to test it in monkeys and in people. But proving its effectiveness might be challenging. “How do you evaluate and regulate a vaccine where their targets aren’t circulating, and so you can’t really show effectiveness?” Dr. Kelvin said.

Perhaps the vaccine could be tested in small sporadic outbreaks, or in poultry workers who are at risk of becoming infected with an avian flu virus, she said: “Those are questions that I think we need to answer before we have our next pandemic.”

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With Federal Aid on the Table, Utilities Shift to Embrace Climate Goals

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“I’ve spent too much time this last year flying in helicopters over areas of scorched earth,” Mr. Biden told them, referring to a rash of wildfires, blamed in part on climate change. “More territory is burned to the ground in the West Coast than the entire state of New Jersey in terms of square miles,” he added. “It’s just stunning. Absolutely stunning.”

Mr. Biden also let the assembled group know that he was well aware that many of them in the past were hardly ready to rally behind him, alluding to when he served as vice president during the Obama administration and also pushed, often in the face of industry opposition, for ambitious climate change measures.

During that period, utilities were secretly sending millions of dollars to a law firm that filed litigation on their behalf to block the Clean Power Plan, enacted during the Obama administration. They also made large donations to Republican attorneys general who filed their own lawsuits to overturn air pollution and climate rules.

E.E.I. members, in some cases, even organized their own sophisticated, but covert, political operations to try to block renewable energy mandates.

The owner of Arizona Public Service, the state’s largest electric utility, secretly donated more than $10 million to help elect state regulators who would sabotage renewable energy requirements it opposed.

The company denied for several years that it had played a role in the scheme, until the F.B.I. opened an investigation. The company was subpoenaed and then confessed in 2019 that it had bankrolled the dark-money push.

But despite that history of opposition to clean-air regulations, the industry in recent years has been abandoning coal, largely for economic reasons. Southern Company, which serves 4.4 million electric utility customers Georgia, Mississippi and Alabama, has long had one of the largest fleets of coal-burning power plants, and it waged an intense fight to protect them, including donations to climate change skeptics.

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