Australia is on the hit-list of nations banned from being sold Russian oil and petroleum products for agreeing to a price cap earlier this month. President Putin finally responded after Australia joined the European Union and the G7 to form the “Price Cap Coalition” to limit the purchase of Russian seaborne crude oil to USD$60 a barrel.
The latest price-cap of G7 countries came into effect on December 5, with the sole intention to restrain Russian from accumulating revenues from its key export while ensuring the global supply unabated.
Australia’s joining G7 irked Putin a great deal
Putin’s aggrieved by Australia’s stance of joining the G7 bandwagon, immediately retorted by banning the country from getting Russian oil and it will come into effect precisely on February 1 – will continue until July 1.
The Kremlin order was posted online and was in response to what it flays – “actions that are defiant and contradictory to international law by the United States and foreign states and international organisations joining them”.
Russian oil and oil products to foreign entities and individuals are banned, on the condition that in the contracts for these supplies, the use of a maximum price fixing mechanism is directly or indirectly envisaged.
Countries like India, China and Brazil will continue to benefit
Meanwhile, countries, like India, China and Brazil who have not joined Australia, the EU, and the G7 will continue to Russian fuel along with insurance, trade finance and shipping services so long as they trade at or below the $60 limit.
Russia is behind Saudi Arabia as the second largest producer of oil, exporting approximately 2.5 million barrels of crude oil daily in December alone. The optimum export of Russian oil will keep its coffer strong.
It is not yet known what impact it will have on global energy security, but countries like China and India will inevitably benefit from the adverse global situations.
Minimal effect on Russian Economy
Many oil experts have opined that the latest sanctions on Russia will have minimal effect to the Russian economy and will not hamper its Ukrainian adventure. The ‘Price Cap Coalition’ may not be able to restrain Russia and the $USD60 cap will become a folly sooner or later.
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Ukraine’s cry not being heard by the West
Ukraine was sceptical of the impact the cap would have on Russia. President Zelensky described it as not a “serious decision”, urging allies to follow Poland which had pushed its fellow EU to put the cap to as low as USD$30 a barrel.
“It’s a weak position. It’s only a matter of time when stronger tools will have to be used; it’s a pity that crucial time will be lost in between, without any substantial gain.
He remarked that a $30 price cap was pragmatic and added that the existing $60 limit will only boost Russia’s budget by “a hundred billion dollars a year”.
Experts say a $60 cap will not have much impact on Russia’s finances. Russia (the world’s No. 2 oil producer) has already rerouted much of its supply to India, China and other Asian countries at discounted prices after Western countries shunned it even before the EU ban.
Further, Russia has said it will not observe a cap and will halt deliveries to countries that do.
Fear of Black Marketing: Russia also could sell oil off the books by using “dark fleet” tankers with obscure ownership
Conclusion: Experts view that the $60 cap is in a way too high. A $30 cap would “give Russia the financial crisis”. But “$60 is better than not agreeing at all”
Impact on India: Buyers in India might not go along with the cap. Russia or China or India could try to set up their own insurance providers to replace those barred by U.S., U.K. and Europe.
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