NEW DELHI: In a bid to weaken Russia’s ability to fund the Ukraine war, the Group of Seven (G7) leaders on Tuesday agreed to develop a price cap mechanism for Russian oil. According to reports, the G7 leaders discussed the US’ suggestion that a price cap decided by consuming countries be imposed. While the contours of the scheme have not been announced, reports say Moscow will be allowed to recover production cost and earn a very small profit for its petroleum products.
For India, which currently imports 10% of its total crude requirements from Russia, the move will be beneficial as it will help combat inflation. Before the Ukraine war, India used to import just 0.2% of its total oil needs from Russia. As the western countries put sanctions on Russian oil, Moscow started offering deep discounts for its products.
Thus, Indian Oil Marketing Companies purchased Russian Ural crude oil at discounts as high as $30 per barrel. Reports say 40% Russian oil was purchased by private firms including Reliance Industries and Rosneft-backed Nayara Energy.
However, experts say consuming countries can’t enforce such a price ceiling. “Russian oil is anyway available at $30-35 discount to India. Even if G7 imposes a ceiling on paper, there will be significant leakages as witnessed from Europe’s so-called ban on Russian energy. I don’t foresee any major shift in India’s import bill with a price ceiling on Russian crude,” said Debopam Chaudhury, chief economist and head of research at TruBoard Partners.
Russia produces around 11 million barrels per day of crude oil, and exports 5-6 million barrels per day. Moscow earned around $110 billion in 2021 from oil exports, which accounts for 45% of its total income in 2021.
Past example
A similar mechanism was launched in 1995 as part of the oil-for-food programme by the UN to allow Iraq to sell oil in exchange for food and medicine. However, the programme was mired in widespread corruption