Price Cap on Russian Oil
- Recently, the Finance Ministers of all G7 countries have announced their plan to “finalise and implement a comprehensive prohibition of services which enable maritime transportation of Russian-origin crude oil and petroleum products globally”, unless they are purchased at or below a “price cap” they will fix.
- This policy of price cap against Russia is a set of new sanctions proposed by the western nations against Russia’s actions against Ukraine.
- This has also been imposed on Belarus as it is supporting Russia in the ongoing conflict.
- Off late the officials from USA & European Union have been trying to convince big buyers including India, Turkey and China to join this coalition in the effort against Russia.
What is the mechanism?
- Any country that would join the coalition would have to restrain from buying oil from Russia unless the price is under the price cap as determined by the coalition to purchase it.
- For countries that don’t join the coalition, or buy oil higher than the cap price, they would lose access to all services provided by the coalition countries including for example, insurance, currency payment, facilitation and vessel clearances for their shipments.
What is the result?
- The western countries say that their efforts are towards reducing the oil prices to control the inflation globally.
- But this would badly hurt the Russian economy as it is clear that these sanctions would discourage countries from buying oil from Russia.
- As a result, this would lead to decrease in Russia’s ability to fund the ongoing war with Ukraine.
- It is a fact that Europe is largely dependent on gas from Russia, so Russia has warned of cutting complete supplies of gas oil, coal, heating oil.
- This would lead the European countries to freeze as the winter is arriving.
- Recently, Russia also announced a halt on all supplies via the Nord Stream 1 pipeline to Europe due to “maintenance issues” arising from the EU sanctions already in place, raising fears of a very difficult winter for European countries.
Source The Hindu