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Why India doesn’t support the G7’s $60 price cap on Russian oil

A tanker is moored at the Sheskharis complex, part of Chernomortransneft JSC, a subsidiary of Transneft PJSC, in Novorossiysk, Russia. The European Union has implemented a $60-a-barrel price cap for Russian oil, a key step as Western sanctions aim to revamp the global oil market to avoid price spikes and deprive President Vladimir Putin financing his war in Ukraine. File Image/AP

The Russian war in Ukraine, now in its 292nd day, continues to rage. Western countries and their allies are trying to exert as much pressure as possible to limit Moscow’s ability to finance its invasion of Ukraine.

Earlier, on December 5, after months of negotiations, Western countries including the G7 countries, the European Union and Australia agreed on a ceiling price of $60 a barrel for Russian Urals crude oil. . These are some of the most significant sanctions to date, as Europe – once the destination of around half of Russia’s oil exports – wean itself further off Russian energy.

However, India, which has called for a diplomatic end to the war, reiterated that it will continue to buy oil wherever it gets a good deal.

You don’t know what all this means? What exactly does a price cap mean? How does India figure in it? We take a closer look and try to simplify things – from the G7 sanction to New Delhi’s position on the matter.

What is the ceiling price of Russian oil?

For those confused, a price cap is a form of economic regulation that sets a limit on the prices a supplier can charge. Interestingly, price cap regulation was first developed for the condom industry in the UK, but has since been adopted for a range of utility industries around the world.

In order to limit Russia’s financing of its war in Ukraine, the G7 countries – the United States, Japan, Germany, Great Britain, France, Italy and Canada – have decided to a $60 price cap on Russian crude oil. The United States and Treasury Secretary Janet Yellen had championed price caps as a way to stem a sharp rise in energy prices following the European embargo.

Some European countries and Baltic countries, depending on Voicehad wanted a lower price cap, but the United States and other countries feared that setting the price cap too low would force Russia to drastically cut production and widely disrupt the global economy.

Also Read: How Russia Earned $98 Billion From Fuel Exports In First 100 Days Of War In Ukraine

This means that they don’t want to completely stop buying Russian oil, as this could have cascading effects on the global economy.

So how does it work?

According to the G7 coalition, insurance companies and other businesses needed to ship oil would only be able to process Russian crude if the price of oil is at or below the cap.

Most insurers are located in the European Union or the United Kingdom and may be required to participate in the cap. Without insurance, tanker owners may be reluctant to accept Russian oil and face obstacles in delivering it.

It should be noted here that the price cap covers all hydrocarbons transported by sea; there is an exemption for the pipeline.

However, the effectiveness and implementation of a price cap like this has not been tested. Russia is already assembling a fleet of tankers to try to ease the measures. Also, the penalties for transporting oil above the ceiling price are not as strict. It has been decided that EU operators financing or maintaining a vessel for transporting Russian oil will be banned for 90 days. This is reduced from a lifetime ban.

What is India’s position on the matter?

India is a big importer of Russian crude oil and many fear that the price cap will negatively affect India.

In fact, in recent times, Indian crude imports from Russia have increased significantly. Commerce Department data shows that before the Ukrainian dispute in February, India’s total import of Russian crude was just 0.2%. However, this figure reached a record 24.8% from April to September.

India’s purchase of Russian crude has drawn criticism from the West, with some claiming New Delhi was helping Moscow invade Ukraine.

Also Read: Why India Bought the Most Expensive LNG Cargo in History

However, India has vigorously defended its import of crude oil from Russia amid the Ukrainian dispute, with External Affairs Minister S Jaishankar saying New Delhi’s supply accounted for only a sixth of European purchase over the past few years. last nine months. The Foreign Minister’s comments came during a press briefing after talks with German Foreign Minister Annalena Baerbock.

On December 7, S Jaishankar told members of the Rajya Sabha that India would go for the best deals to buy oil for the benefit of its people.

Also earlier, on November 8, Foreign Minister S Jaishankar had said that buying Russian oil was to India’s benefit and that India would continue to do so.

“The government is not asking Indian companies to buy oil from Russia, but it is a sensible policy to get the best deal for the benefit of the Indian people.”

He further added that India is not sticking to one country for its oil purchase but will always opt for the deal from all available options.

“If tomorrow the market offers us more competitive options. Again, please understand. It’s not just that we buy oil from one country. We buy oil from multiple sources but it is a sensible policy to go where we get the best deal for the benefit of the Indian people and that is exactly what we are trying to do.

Union Minister for Petroleum and Natural Gas Hardeep Singh Puri also said India would not be affected by the price cap.

In an interview at BO Premiumhe reportedly said, “I would say that India is not worried that the price cap proposed by the West could limit shipping and impede the flow of Russian oil. I have no concerns about that and I’m sure the market will deal with it.

When asked if he had any qualms about buying Russian oil in November, he said CNNFrom Becky Anderson, “Absolutely none, there is no moral conflict, if someone wants to take an ideological position… We don’t buy from X or Y, we buy whatever is available. It’s not me who buys, it’s the oil companies who buy.

In turn, Russia hailed India’s stance, with the Russian Foreign Ministry issuing a statement on December 11: “Deputy Prime Minister hailed India’s decision not to support price cap Russian oil, which was imposed on December 5 by the G7 countries and their allies.

Russian Deputy Prime Minister Alexander Novak has offered cooperation to India on leasing and building high-capacity ships so as not to depend on the ban on insurance services and the chartering of oil tankers in the European Union and the United Kingdom, according to the press release.

Novak described the introduction of a Russian oil price cap as an “anti-market measure” which he said affects supply chains. “The introduction of a Russian oil price cap is an anti-market measure. It disrupts supply chains and could significantly complicate the situation in global energy markets. Such non-market mechanisms disrupt the international trading system as a whole and set a dangerous precedent in the energy market,” Novak said in the statement.

With contributions from agencies

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