Home / Industry / Energy /  What does Russia oil price cap hold for India?

Oil markets are bracing for volatility after Russia dismissed the G7 price cap of $60 per barrel on its crude oil. For oil importers like India, the move is a cause of concern, though the government seems confident on getting adequate supplies. Mint explains.

Why has the oil price cap been imposed?

The price cap on Russian seaborne crude oil and oil products has been imposed by G7, in which the European Union is a non-enumerated member, to curb Russia’s earnings from its oil exports that fuels its war in Ukraine. The move prohibits purchase and delivery of crude from Russia above the price cap. This is another effort among the West’s series of measures to isolate Russia and squeeze its funds for the war. According to EU, the price cap will also serve to stabilize global energy prices which have remained elevated amid the Ukraine war and would address inflation.

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Will the cap impact  Russian oil exports?

Russian oil exports are already shunned by several European Union countries and the US. The latest move may not have any more severe impact as the world’s second largest oil producer has been selling its oil at discounted prices to other buyers including India, China and south east Asian countries, routing a large quantum of its supplies to these countries of late. China imported 904,000 barrels per day and India imported 883,000 barrels per day in October from Russia. And supplies to India and China together constituted 58% of total seaborne oil exports by Russia.

Barrel count
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Barrel count

Is the price cap fixed or it can be changed?

The price cap is adjustable over time. The EU has said that after the initial cap, the price may be amended in the future to reflect market developments and technical changes, as agreed by the price cap coalition. The review would be based on effectiveness of the measure, its implementation, and international adherence, among other factors.

How will the move impact India?

The price cap seems unlikely to impact India as the price cap has been set above the discounted levels at which Russia has been selling. Recently, according to estimates, India and China bought crude at around $50 per barrel from Russia. India also has a diversified source of oil imports with Iraq, Saudi Arabia and the UAE as traditional major suppliers. Although supplies do not seem to be a problem right now, a counter-move by Russia and a refusal to sell oil at or below the capped price may fuel supply concerns.

How does India plan to handle the issue?

India has maintained that it will continue to import oil from all possible sources, including Russia. Further, the fact that the price cap has been set higher than the discounted prices offered by Russia may come as a relief. Also, India has been assured by global oil suppliers that there will be no disruption. Importers would also be looking at ways to circumvent the price cap norms, such as using non-European shipping liners, insurance and finance providers to import Russian oil to skirt the price-cap curbs.

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Rituraj Baruah

Rituraj Baruah is a senior correspondent at Mint, reporting on housing, urban affairs, small businesses and energy. He has reported on diverse sectors over the last six years including, commodities and stocks market, insolvency and real estate. He has previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.
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