As the European Union and G7 countries have imposed a price cap on Russian oil, will India stop buying oil from Russia? Let’s find out.
It’s almost a year since Russia invaded Ukraine, and the conflict is still ongoing. The rest of the world is concerned for Ukraine. As Russia is one of the largest oil producers, the European Union and the G7 countries decided to set a price cap on Russian oil. They did this to reduce Russia’s income from selling oil, so it faces difficulty funding the war against Ukraine. Another reason behind imposing a price cap is to avoid a sharp spike in the prices of Russian oil.
The United States and the European Union tried to convince India, China and Turkey to support the price cap a few months back. But they didn’t get a positive response. So, the G7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) and all EU Member States imposed a price cap of $60/barrel. It came into effect on 5th December 2022.
How Will the Price Cap Work?
The price cap means countries cannot buy Russian oil for more than $60 per barrel. Moreover, if the price of Russian crude oil rallies, the price cap will be revised and set at least 5% below the average market price.
However, the price cap is relatively small. On Friday, 2nd December 2022, the price of Russian Urals crude traded at around $67/barrel. A $7/barrel price deduction will not significantly affect Russia’s economy.
But what would happen if a country refuses to follow the price cap?
In this case, facilities like insurance and freight won’t be offered to those countries that won’t follow the price cap. These days, most freight insurers are from the European Union. Hence, they have the power to deny offering their services.
According to Business Standard, Kremlin Spokesman Dmitry Peskov said, “Russia refused to accept a price cap on Russian oil which European Union along with G7 and others have set”. Moreover, it will not supply oil to countries implementing the price cap. He also mentioned, “Starting this year, Europe will live without Russian oil”.
This may be another disaster for Europe as they have stayed dependent on Russian LNG – a chilled, liquid form of gas used to run factories, generate electricity and heat homes for years. Back in September 2022, Russia had choked off the supplies of cheap natural gas to Europe, and now it has decided to cut down the supply entirely.
How will it Affect India?
Regarding importing oil from Russia, India and China have benefited the most. Both these countries are buying oil at a discount of a whopping $25 to $35 a barrel. So, India might not go along with the cap. According to Indian Express, there is also a possibility for Russia to set up their own insurance providers and replace those barred by the US, UK and Europe.
According to Times of India, oil minister Hardeep Singh Puri said, “India hopes to convert the current global oil challenges from Ukraine crisis into an opportunity to secure affordable energy”.