On the Russian oil price cap

(MainsGS2: Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.)

Context:

• Recently, the Group of Seven (G7) countries, the European Union and Australia have imposed a price cap on Russian sea-borne oil to make it harder for Russia to fund its war against Ukraine.

Limit Russia’s energy revenues:

• Under the plan western companies that dominate the global oil shipping and insurance business will be banned from offering their services to ship or insure Russian oil that is purchased at more than $60 per barrel. 
• The price cap is an attempt by the West to cut Russia’s oil revenues without affecting oil supplies.
• Since the beginning of the Russia-Ukraine war, the West has been trying to limit Russia’s energy revenues.

The price cap:

• Russia is a major oil producer that contributes more than 10% of overall global supplies thus the West has been wary of imposing sanctions that could cause oil supply from Russia to fall steeply and send oil prices shooting up.
• In fact, it is estimated that crude oil prices could rise to as much as $200 per barrel if oil supply from Russia were to be disrupted by Western sanctions.
• The price cap could be seen as an attempt by the West to make buyers of Russian oil pay less for the oil they purchase, thus preventing the Kremlin from profiting too much from its oil sales.

Russian response:

• Deputy Prime Minister Alexander Novak said global consumption, economic growth in the world must be provided with energy resources. 
• There is not much oil in the world, and Russian oil has always been and will be in demand thus supply chains will change. 
• At the moment, Russian oil is trading at a price that is below the cap of $60 per barrel imposed by the West.
• The average price of Russian Urals over the last 10 years has been about $75 per barrel so, while the price cap of $60 per barrel is unlikely to adversely affect the supply of Russian oil or Moscow’s revenue in the short run, it is likely to have adverse effects in the longer run.

India’s interest:

• China and India are popular examples of countries that bought discounted oil but the likes of France and major oil producer Saudi Arabia too purchased oil from Russia. 
• Saudi used the discounted price to buy oil to run its power plants, while selling its own costlier variant to the world.
• Interestingly, India whose imports of Russian oil was only about 0.2% of total oil imports in the year ended March 2022 has had Russia serve as its top oil supplier in October and November. 
• Reports further said that in November, India bought 53% or about 3.7 million tonnes of all the seaborne Urals crude that Russia exported.