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?
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Initiatives taken to cut down Crude Oil Imports
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- 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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