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The G7’s oil price cap & India’s position

  • Category
    Economy
  • Published
    9th Dec, 2022

Context

A surge in the oil prices was reported after a group of seven (G7), European Union (EU), and Australian proposal of capping Russian seaborne oil came into effect. But it may not impact Russia.

What is the price cap?

  • A price-cap regulation is a form of economic regulation that establishes an upper limit on the prices that a utility provider can charge.
  • The price cap is meant to hurt Russia’s finances while avoiding a sharp oil price spike if Russia’s oil is suddenly taken off the global market.
  • The cap price as of now is $60 and is applicable only to those shipments which are going to be loaded after December 5th, 2022.

Counter-Measures by Russia:

  • Fear of Black Marketing: It is possible for the shipping industry to misrepresent or obscure the origin of its cargo by using “dark fleet” tankers.
  • Russian Production complex with exemption: Certain pieces of the Russian production complex, for example Sakhalin-2 project that is heavily funded by Japan can be a source of “un-capped” Russian crude in the market.
  • Selling refined products instead of crude: There may be opportunities to divert Russian barrels “through refined or partially refined products” as the blends that includes Russian crude remains unaffected from the price caps.
  • Routing of Russian oil: Russia can route its oil, through non-European shipping channels to countries such as China, Turkey, Indonesia and India to avoid cap pricing.
  • Not using western tankers: Russia can refuse to use tankers that joined the oil cap scheme and could cut its oil exports relying on a smaller group of non-western tankers and insurers.

What is India’s position?

Initiatives taken to cut down Crude Oil Imports

  • Urja Sangam 2015
  • Production Sharing Contract (PSC) Regime
  • Discovered Small Field Policy
  • Hydrocarbon Exploration and Licensing Policy (HELP)
  • New Exploration Licensing Policy (NELP)
  • Ethanol Blending Programme (EBP)
  • India has decided to double its trade with Russia in the “near foreseeable future”.
  • India remains non-committal on any such pricing cap
  • India could try to set up their own insurance providers to replace those barred by the by U.S., U.K. and Europe.
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