G7: Cracks in Western Unity on Russia

Ottoman Sultan Abdulmejid spared no expense to build the sumptuous Dolmabahce Palace in Istanbul during 1843 and 1856, which was constructed to impress the world. It had the largest Bohemian crystal chandelier ever installed and 14 tonnes of gold to gild the ceilings. 

In subaltern history, that splash, which the Sultan could ill afford, was necessitated partly by the desperate need to confuse creditors who suspected that late Ottoman Empire might be drowning in problems, near bankruptcy, disrupted by inflation, compounded by imperialism. 

The three-day gathering of the G7 leaders in Elmau Castle in the Bavarian Alps from Sunday through Tuesday in a fairy-tale setting calls to mind the analogous past of the Ottoman decline. There is much public criticism that such an opulent spectacle is no longer in keeping with the times and an example of how out of touch, even decadent, these politicians have become.

The German Chancellor Olaf Scholz, in his capacity as the host, made a final appearance before the media on Tuesday with a somewhat sombre atmosphere that reflected his message to the assembled journalists, “A time of uncertainty lies ahead of us. We cannot foresee how it will end.” 

Scholz was referring to the Ukraine crisis and its consequences. Scholz spoke of a “long haul” and of consequences for everything and everyone. Gone was the triumphalist Western narrative about the “cancel Russia” strategy. 

Indeed, the main point of contention among the G7 countries was how to deal with Russia. The G7 countries see that they have failed to isolate Russia and, perhaps, it is not even in their interests to entirely fall out with Moscow for economic reasons. 

The summit barely agreed to discuss a batch of new sanctions against Russia, but the deliberations underlined the limits of using economic tools to punish Russia. The Western strategy is in logjam — Russia is winning the war despite the US’ massive weapon deliveries to Ukraine; sanctions failed to deter Russia and are possibly hurting Europe more than Russia; and, ideas have run out. 

There was no sign of dissent on public display, but even as the G7 leaders pledged their unwavering support to Ukraine, it weighed on their mind that the unprecedented sanctions against Russia implemented by the G-7 and the European Union —targeting Moscow’s economy, energy exports and central-bank reserves—have caused global market volatility and raised energy costs. The Wall Street Journal reported, 

“Now high inflation, slowing growth, and the specter of energy shortages in Europe this winter are damping the West’s appetite for tougher sanctions against Moscow. Divergences among the leaders of the US, Canada, Britain, France, Italy and Japan prevented them from agreeing on concrete new sanctions, with the group only agreeing to start work on measures ranging from a price cap on Russian oil purchases to a gold embargo. With most immediately available options for punishing Russia largely exhausted, only more complicated and more controversial alternatives remain on the table.” 

The G7 communiqué read: “We will consider a range of approaches, including options for a possible comprehensive prohibition of all services, which enable transportation of Russian seaborne crude oil and petroleum products globally. We task our relevant Ministers to continue to discuss these measures urgently, consulting with third countries and key stakeholders in the private sector, as well as existing and new suppliers of energy, as an alternative to Russian hydrocarbons.”

The G7 leaders also discussed a US proposal, which provides that buyers of Russian oil themselves determine the maximum price they are willing to pay for it. In the end, no concrete decisions were made against the backdrop of the European Union’s reservations. The US proposal will make sense only with the full participation of all EU countries, as well as China and India, who are unlikely to support such a decision. In fact, some EU countries are almost 100% dependent on Russian oil and if Russia does not agree to supply oil at a reduced price, then these countries risk being completely without raw materials.

One main reason to invite India, Indonesia, South Africa, Senegal and Argentina to the G7 summit was to expand the global alliance against Russia, but the ploy didn’t work. According to the Journal, Prime Minister Narendra Modi told Scholz at a bilateral meeting that India couldn’t join any efforts against Russia, and also publicly defended the oil purchases from Russia.    

Similarly, a second area where the G7 hopes to reduce Russia’s income is by stopping the import of Russian gold. Even here, consensus was lacking. Scholz wanted the US proposal to be first discussed at EU level. But the head of the European Council Charles Michel was sceptical: “As for gold, we are ready to discuss the details and see if it is possible to hit gold in such a way as to hit the Russian economy and not hit ourselves.” 

The Kremlin spokesman Dmitry Peskov was openly dismissive: “The precious metals market is global, it is quite large, voluminous and very diverse. As with other goods, of course, if one market loses its attractiveness due to illegitimate decisions, then there is a reorientation to where these goods are more in demand and where they are more comfortable and more legitimate economic regimes.”

The low-key performance of US President Joe Biden at the G7 summit speaks for itself — he was content to let other leaders do most of the talking. On the final day of the summit, as the sun disappeared and dark clouds settled over the imposing mountain backdrop behind Schloss Elmau, Biden pleaded an impending thunderstorm to make a hurried departure for Munich airport, abandoning a speech he’d planned to deliver.

Indeed, the disconnect is almost surreal. At the last G7 summit under the German presidency in 2015, the Western leaders had pledged to free 500 million people from hunger by 2030, whereas, the numbers have only been rising since 2017, and in 2022, there are over 150 million more people suffering from malnutrition. Climate is another example. 

German chancellor Olaf Scholz has come under criticism for trying to water down agreements on international climate protection at the G7 summit. Because of the energy crisis, Germany is trying to reverse its voluntary commitment to phasing out public financing of fossil fuels by the end of 2022. 

Without doubt, this year is an important one for the climate. The international community has promised to update the national climate plans and adapt them to meet the 1.5 degrees Celsius target ahead of the UN climate conference in Egypt in November, and for this to happen, the G7 should set a good example. 

On the contrary, Germany is stepping up its imports of coal due to uncertainties over Russian gas supply. The G7 stressed the role of increased deliveries of liquefied natural gas, adding they “acknowledge that investment in this sector is necessary in response to the current crisis.” Scholz, again, warned of the real risk of energy shortages in German economy and a Lehman-like domino effect. No doubt, this is a blatant reversal of climate strategy.

Fundamentally, what all this highlights is that the G7 is clueless how to navigate a way out of their “sanctions from hell” against Russia. The summit exposed that the existing sanctions against Russia have gone beyond most Western policy makers’ pain threshold. And the European leaders are discovering now that there is a price to be paid for further sanctions. 

To be sure, there is an urgent need to decide on a new Western strategy in case of a prolonged economic confrontation with Russia, and educate the voters about the possible consequences. Germany’s government warned last week of potential gas shortages that could trigger closure of factories and possible rationing of gas supplies to homes.