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 5^th, 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?

• 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.