{"id":2993,"date":"2022-12-08T00:00:00","date_gmt":"2022-12-08T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/08-12-2022\/price-cap-on-russian-crude-oil\/"},"modified":"2022-12-08T00:00:00","modified_gmt":"2022-12-08T00:00:00","slug":"price-cap-on-russian-crude-oil","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/08-12-2022\/price-cap-on-russian-crude-oil","title":{"rendered":"Price cap on Russian crude oil"},"content":{"rendered":"<p><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>In News<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">European Union and Australian proposal imposing a price cap on Russian seaborne oil recently came into effect.<\/span><\/span><\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>More about the news<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>About<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>European Union<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> said it would implement a plan originally floated way back in May, with the<\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong> G7 and Australia<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> also signing up on <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>the plan to impose the price cap on Russian crude oil shipments.<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">\u00a0<\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The price cap is pegged <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>at $60 to a barrel for now<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Significance of the price cap<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">When the EU first proposed the ban, the inference was that this would deal a major blow to Russia\u2019s oil cash flows.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">It was also noted that the European shipping liners and insurers have long had a stranglehold on global energy markets.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Need for a price cap:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">If Russian oil does not make its way into the global oil market, then crude prices could potentially spike, impacting consumers in the EU and the US, alongside those in the rest of the world.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The concern of an inflationary spike is very real. So, the floor price formula was decided on.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>How will it work?<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The price cap is essentially aimed at preventing firms in signatory nations from extendin<\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>g shipping, insurance, brokering and other services<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> to <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Russian crude oil shipments <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">that are sold at any value above the designated per-barrel price, i.e. $60 for now.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Since it came into effect on December 5, the cap will only apply to shipments that are \u201cloaded\u201d onto vessels after the date and not apply to shipments in transit.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>The price cap seeks to balance two contrasting objectives:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">How to <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>cut Russia\u2019s oil and gas earnings<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">, <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>without <\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">simultaneously <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>crimping the global supply of oil<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">, which could stoke runaway inflation further.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Challenges &#038; ineffectiveness of the ban:<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Only marginally below the current market price:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Essentially, the embargo and price cap scheme has little bite, given that it is just marginally below the current market price for Russian crude.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Russian oil is already trading at a discount of about $68 per barrel as compared to $85 for Brent crude.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Existing oil profits:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">It took nearly 6 months for the grouping to come up with a price cap of $60, and this figure barely makes a dent in Russia\u2019s oil profits that it is using to sustain the war with Ukraine.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Availability of diversion routes:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The price cap also does not fully address blends that include Russian crudes, suggesting that there may be additional opportunities to divert Russian barrels \u201cthrough refined or partially refined products.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The main concern for the EU and the US would be the routing of Russian oil, outside of the price cap remit, through non-European shipping channels to countries such as China, Turkey, Indonesia and India.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>India\u2019s position<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>India\u2019s doubled trade with Russia:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Despite the United States-led sanctions on Russia post its invasion of Ukraine, India has decided to not just continue with, but also double its trade with Moscow in the \u201cnear foreseeable future\u201d.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Discounted price:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">The increase in trade volumes between the two countries have mainly come on the back of sharply higher import of discounted Russian crude by India.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Data on India\u2019s oil imports:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">India, which imported less than 1 percent of its total crude from Russia before the Russia-Ukraine war, now imports over 20 per cent of its total requirement from it.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Crude imports from Iraq and Saudi Arabia, which were the top two suppliers of crude to India, constitute around 21 and 16 per cent, respectively, of India\u2019s total import.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Sustaining India\u2019s need:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">As stated by India\u2019s External Affairs Minister, as the world\u2019s third-largest consumer of oil and gas, as a consumer where the levels of income are not very high, it is our fundamental obligation to ensure that the Indian consumer has the best possible access on the most advantageous terms to international markets.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">And in that respect the India-Russia relationship has worked in India\u2019s advantage.\u00a0<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>Non-committal to Price caps:<\/strong><\/span><\/span><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">So, India\u2019s stand, for now, has been to remain non-committal on any such pricing cap arrangement.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>Way ahead<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">India\u2019s decision on purchasing oil from Russia will continue to be guided by its energy security requirements.<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">In practice, the price cap will work only if the service providers ask their clients for proof that they have bought Russia-linked crude at a cap-compliant price.<\/span><\/span><\/span><\/li>\n<\/ul>\n<div>\n<table cellspacing=\"0\" style=\"border-collapse:collapse; border:none; width:667px\">\n<tbody>\n<tr>\n<td style=\"background-color:#d9ead3; border-bottom:1px solid #000000; border-left:1px solid #000000; border-right:1px solid #000000; border-top:1px solid #000000; vertical-align:top; width:667px\">\n<p><span style=\"font-size:13pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong><u>India\u2019s Stand on Russia\u2019s War with Ukraine<\/u><\/strong><\/span><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">India\u2019s response to the Russian invasion of Ukraine has been <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>distinctive among the major democracies<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> and among U.S. strategic partners.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">Despite its discomfort with Moscow\u2019s war, New Delhi has adopted <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>studied public neutrality toward Russia<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">It has abstained from successive votes in the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>UN Security Council, General Assembly, and Human Rights Council<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> that condemned Russian aggression in Ukraine and thus far has refused to openly call out Russia as the instigator of the crisis.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">India has been under <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>immense indirect pressure from Western nations<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"> that have openly condemned Russia\u2019s military aggression against Ukraine.\u00a0<\/span><\/span><\/span><\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">India has been pressing for the <\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\"><strong>resolution of the crisis through diplomacy and dialogue<\/strong><\/span><\/span><\/span><span style=\"font-size:12pt\"><span style=\"font-family:'Book Antiqua',serif\"><span style=\"color:#000000\">.<\/span><\/span><\/span><\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>In News European Union and Australian proposal imposing a price cap on Russian seaborne oil recently came into effect. More about the news About the European Union said it would implement a plan originally floated way back in May, with the G7 and Australia also signing up on the plan to impose the price cap [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":2994,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[57,30],"class_list":["post-2993","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-effect-of-policies-politics-of-developed-developing-countries-on-indias-interests","tag-gs-2"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/1060155Screenshot_6.png","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/2993","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=2993"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/2993\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/2994"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=2993"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=2993"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=2993"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}