NEW DELHI: Members of the G7, at a meeting last week, agreed to impose a price cap on Russian oil to bolster Moscow’s ability to finance the war in Ukraine. Finance ministers of the G7 countries (UK, US, Canada, France, Germany, Italy and Japan) said the cap on crude oil and petroleum products would also help reduce global energy prices.
As expected, the Kremlin’s response was anything but favorable. Russia said it would stop selling oil to countries that had imposed a price cap.
European Commission President Ursula von der Leyen said on Wednesday that EU countries should set a price cap on Russian natural gas and seek “solidarity contributions” from European oil and gas companies, which are making extraordinary profits. Because the war in Ukraine exudes energy. Cost as per agency report.
This has only added fuel to the fire, further pushing up crude oil prices. Global oil prices hit nearly $1 a barrel on Thursday as an energy standoff between Europe and Russia sparked supply concerns.
What is the proposed price range and how will it work?
A price cap on Russian energy would primarily consider limiting the price those countries pay for energy imports to a level that is lower than current high prices but sufficient to encourage continued exports. The move is aimed at curbing Russian energy revenues, on which Moscow depends to finance the ongoing war in Ukraine. G7 leaders have said the exact price will be decided “at a level based on a range of technical inputs”.
There is another element. On 5 December 2022, the European Union (EU) will impose sanctions on marine imports of Russian oil, followed by a ban on refined oil products in early 2023. The European Union and the UK, which dominate the maritime shipping and insurance market, can provide these services only to suppliers who comply with the price range. This would ensure that Russian energy supplies would continue but on the terms and prices of Europe.
Will this work?
The jury is out. The G7 is making a risky bet. He believes that Russia will succumb to the pressure and continue to supply oil to Europe. Proponents of the price cap say that bringing together the financial height of the US and Europe’s dominance in shipping insurance forced Russia to accept the terms or search for less-profitable and riskier supply routes and customers in Asia. Will go
As US Treasury Secretary Janet Yellen put it, “Why should they retaliate for an initiative that enables their oil to continue to trade in world markets at a price that is still profitable?”
Russia did not prove to be as fair as Europe and America would like.
After a meeting of G7 finance ministers, where the price cap was discussed, Moscow announced that the Nord Stream 1 pipeline, which was the main artery for Europe’s natural gas imports from Russia, would be closed indefinitely.
Experts say the European plans may need the support of India and China to be successful. This is unlikely to happen as both countries have benefited greatly from steep discounts on Russian oil imports.
What are the challenges?
For one, Russia may simply call Europe the hoax and refuse to sell. Moscow’s reaction to the news of the oil cap was clear: it would stop selling oil to countries that put caps on Russian oil.
Russia has shown a propensity for this in the past. It cut supplies to countries that refused to pay for energy supplies in rubles and, as previously noted, closed the Nord Stream 1 pipeline. In response, natural gas prices in European markets rose sharply on Monday.
With energy prices soaring and Europe staring at barrels of a cost of living crisis, a grueling showdown with Moscow on oil prices could push the domestic population to the breaking point. Many analysts have warned of skyrocketing oil prices as an inevitable consequence of further tensions and uncertainty in energy markets.
What role is India expected to play?
It is clear that Europe would like India’s support in implementing this price cap. European Energy Commission Kadri Simson argued that India and China should help in this matter.
After Moscow’s invasion of Ukraine, China and India increased their purchases of Russian oil, taking advantage of concessional rates.
Asked whether the EU expects China and India to help with the proposed price cap, Simson said, “I think they should.” Speaking of India and China, Simpson said it was “unfair to pay additional revenue to Russia” even though both countries were claiming “this is critical to the security of their supplies.”
When asked about India’s position on the price cap on Russian oil imports, Petroleum Minister Hardeep Puri said that India will “watch it very carefully. However, Puri has a moral duty to sanction Russia because of its actions in Ukraine.” Also dismissed, “I have a moral duty to my consumers.”
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