Explained: What Is Russia¡¯s Oil Price Cap?

India will consider the price ceiling on Russian oil that the West has proposed. According to reports, India is reluctant to join a US-led international push to limit the price of Russian crude oil.

Meaning behind the Russia's oil price cap

The G7 is attempting to establish a limit on the price of Russian oil. In order to reduce Russia's oil income, the G7 decided to set a price ceiling on its oil. Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, and the European Union are among these seven countries.

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The price cap is explicitly made to lessen Russia's income, its capacity to finance the conflict in Ukraine, and its impact on world energy prices, especially in low- and middle-income nations. Russia has threatened to stop supplying oil to any nation that agrees to the price cap scheme.

On September 2, the G7's finance ministers suggested limiting the price at which oil-related service providers might trade in Russian petroleum products and seaborne oil to the cap.

Cap on Russian oil prices: Yellen provides an anticipated range

Quoting a report by Mint, the specific dollar amount of a restriction on the price of Russian oil had not yet been decided, according to US Treasury Secretary Janet Yellen. However, she stressed that she had not implied that a price in the $60 to $70 per barrel range was being actively considered.

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At the annual meetings of the International Monetary Fund and the World Bank, she claimed that there was broad consensus among international financial leaders that Russia should end its conflict with Ukraine, which is having grave adverse effects on the world economy.

Yellen stated at a news conference that the precise amount of the oil price cap would be decided upon in conjunction with other coalition members according to a number of benchmarks and might be modified. She stressed that no decision had yet been taken.

Yellen stated on Wednesday that a $60 per barrel price restriction on Russian oil exports would probably be sufficient to reduce Moscow's energy income while allowing for profitable production.

Russian oil price caps effects

The price ceiling on Russian oil proposed by Western nations, according to Russia's deputy energy minister Pavel Sorokin, would be detrimental to the entire oil market.

Sorokin declared that Russia would not work with nations that impose a price cap while speaking at the Moscow Energy Week conference.

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Alexander Novak, the deputy prime minister of Russia, also issued a warning that the European Union's intention to cap the price of Russian oil as part of new sanctions against the nation for its involvement in the conflict in Ukraine might have a "detrimental effect" on international oil markets.

"Such a tool disrupts all market mechanisms and can have a very detrimental effect on the global oil industry," Novak said.

India might not support the US-led effort to restrict Russian oil prices

Under the condition of anonymity, a government official spoke to Mint that Russia has threatened to cut off supply to anyone taking part in the US-led initiative to cap the price of Russian crude oil.

¡°Overall, the way the US pitches is that a price cap is also good for India. On the other hand, Russia has threatened to stop supplies to anyone participating in this plan. That doesn¡¯t leave us anywhere. In that case, why would we want to be part of it? The deal here is that we have to balance our interests," the official said.

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As it snatched up supplies spurned by many nations, Russia, which has never been a significant oil supplier to India, rose to become the third largest provider to the country's energy import-dependent economy in FY23.

On a delivered-at-place (DAP) basis, India purchases Russian oil at an average discount of $15 to $20 per barrel, with the seller taking on the transportation risk for delivery to the specified port. According to figures from the Union Ministry of Commerce and Industry, India bought crude oil worth $11.41 billion from Russia in the current fiscal year through the month of August.

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