Price Cap Plan On Russian Oil

Why in the News?

Recently, the G 7 Finance Ministers agreed to impose a price cap on Russian oil.

Key Points:

About the Price cap plan: 

• It is a form of economic regulation that establishes an upper limit on the prices that a utility provider can charge.
• The price cap plan is the latest of the sanctions proposed by Western countries against Russia.
• It is expected to be finalised when G-20 countries meet in Bali in November, and will go into effect on December 5.
• Russian crude is priced at a discount to the international Brent benchmark and the G7 wants to keep that spread wide, to keep down Russian oil revenue.
• Members:
  • The G7 nations wants to enlist other countries, including India and China.

How will it be enforced?

• For countries that join the coalition would not buy Russian oil unless the price is reduced to where the cap is determined.
• For countries that don’t join the coalition, they would lose access to all services provided by the coalition countries including for example, insurance, currency payment.

Impact of price cap plan:

• Control inflation globally
• It will cut the price Russia receives for oil without reducing its petroleum exports.
  • Hurt the Russian economy and its ability to fund the war in Ukraine

Russia reaction:

• Russia would not supply “anything at all” if it contradicts Russian interests.
• It could stop supplies of gas, oil, coal, heating oil… leaving European countries to “freeze”.

Will India comply with the price cap?

• So far, India has not obliged, and there is little indication that is likely to join the plan.
• India’s oil intake from Russia has soared 50 times over since the war started.

About G7: It began as the Group of Six in 1975- with a meeting of leaders of US, UK, West Germany, Italy, France and Japan, as a result of the Oil crisis and global currency exchange issues. Canada joined in 1976– making it the G-7. The EU leadership is always invited to G-7 meets. In 1998, Russia was added to make it the G-8. However, after the Russian wars with Georgia in 2008, and the annexation of Crimea in 2014, the club ousted Russia permanently.