Explained | What is the G7 planning on Russian oil?

How will the imposition of a price cap on oil purchases from Russia take off on the ground? How does India respond to the call of the West?

How will the imposition of a price cap on oil purchases from Russia take off on the ground? How does India respond to the call of the West?

The story so far: On September 2, the finance ministers of all the G7 countries, the United States, Canada, the United Kingdom, France, Germany, Italy, Japan, as well as European Union have announced their plan to “finalize and implement a comprehensive ban on services that enable shipping”. crude oil and petroleum products of Russian origin in the world”, unless they are purchased at a ceiling price or lower than that which they will set. The plan, however, does not include Russian gas, on which Europe is still quite dependent.

What is the Price Cap Plan?

The price cap plan is the latest in sanctions proposed by Western countries against Russia for its invasion of Ukraine, as well as Belarus for its support of Russia. In recent weeks, US and European officials have tried to convince countries like India, China and Turkey to join the coalition or at least support the price cap, which they say is in the pipeline. interest of all Russian oil buyers as it will give them leverage to lower purchase prices.

How will it be applied?

For countries joining the coalition, this would simply mean not buying Russian oil unless the price is reduced to the level where the cap is determined. For countries that do not join the coalition or buy oil at a price above the ceiling price, they would lose access to all the services provided by the coalition countries, including, for example, insurance, payment in foreign currency, facilitation and customs clearance of ships for their shipments. In addition, the price cap is expected to be finalized when members of the G-20 countries meet in Bali in November and come into effect on December 5. It is the day the European Union begins its sixth round of sanctions, to ban all Russian imports of crude oil by sea, which would increase pressure on Russia to reduce its selling price of oil. G7 countries say they aim to reduce the price of oil, but not the amount of oil Russia sells, in order to control inflation globally while hurting the Russian economy and its capacity to finance the war in Ukraine. This could only work, of course, if all countries joined the coalition. However, if Russia is able to sell its price above the ceiling price, it would mean enormous pressure on the oil available to the coalition countries, especially the G7 who are heavy consumers, and could lead to a surge. oil prices.

How did Russia react to the plan?

Russian President Vladimir Putin blasted the plan, warning that Russia would provide “nothing at all” if it contradicted Russian interests. Speaking this week at the Eastern Economic Forum (EEF) in Vladivostok, which Prime Minister Narendra Modi joined virtually, he threatened that Russia could cut off supplies of gas, oil, coal, heating oil. …leaving European countries to “freeze”. On September 5, Russia also announced the halting of all supplies via the Nord Stream 1 gas pipeline to Europe due to “maintenance issues” stemming from EU sanctions already in place, raising fears of a severe winter. difficult for European countries.

Will the Modi government respect the price cap?

The price cap is just the latest in a series of sanctions aimed at harming the Russian economy with which the US and the EU have tried to coax India: whether ask India to change its non-critical stance on Russia at the United Nations or reduce oil consumption. imports, halt defense and other purchases from Russia, and avoid the rupee-ruble payment mechanism that circumvents their sanctions. So far, India has not been obliged, and there are few indications that New Delhi is likely to do so, for now. India’s consumption of oil from Russia, which was tiny before the war, has increased 50-fold. When asked, Oil Minister Hardeep Puri rejected any “moral” duty to join the price cap coalition and said its only duty was to provide affordable oil to Indian consumers. Speaking at the EEF, Modi said he wanted to “strengthen” energy ties with Russia and boost India’s $16 billion investment in Russian oil fields. This week, Modi will also join President Putin, Chinese President Xi Jinping, Turkish President Recep Tayyip Erdogan and other leaders at the Shanghai Cooperation Organization summit in Uzbekistan, where the price cap issue will no doubt be discussed from a point of view opposed to the G7. It also remains to be seen whether India will negotiate with the US to lift sanctions on Iran and Venezuela, whose oil imports it canceled under US pressure in 2017-18, in exchange for its membership in the price cap coalition.

Comments are closed.