Russian oil prices may range from $65 to $70 per barrel. In fact, the G-7 group and the European Union are soon going to announce a price cap to limit Russia’s sale of cheap oil to India. In such a scenario, it will have an impact on India. Ambassadors from all EU countries met on Wednesday to agree on the price ceiling and proposed the price ceiling level. The price limit may be announced after approval.
According to sources, the European Union is considering capping the price of Russian crude oil between $65 and $70 per barrel. This means that Russia cannot sell oil at a cheaper or higher price. If this price ceiling is approved, this camping ceiling will exceed Russia’s cost of production. Russia is currently selling its crude oil at a discount. This price range can affect his business.
Most G-7 member states appear to have agreed to a price range of $65 to $70 per barrel, according to Bloomberg’s report. But some member states call this price limit too high. This price ceiling is almost equal to the average price at the beginning of the war in Ukraine.
Fall in crude oil prices
Oil prices fell on news of the proposed price ceiling. This is said to be because oil companies want to ensure that the cargo they buy (cargo loaded with oil) complies with a fixed price range. If the price of oil sold by Russia remains at the current discount level, Russia can claim that this price cap by the West has not affected its business.
Currently, Russian oil Urals trades at a significant discount to Britain’s benchmark. The price of Brent oil is around $85 per barrel. At the same time, Russian Ural crude oil is selling for only $65 per barrel.
Simon Tagliapietra, an expert at the Bruegel think tank, says the price ceiling for Russian oil should be equal to the price of Brent oil. The current price range will not affect Russia much.
Why the price limit?
The main purpose of the price ceiling was to reduce Russia’s income. The objective of the economic sanctions imposed on Russia from the West is to reduce Russia’s source of income, thereby reducing the Russian funds used in the war with Ukraine.
The US wants Russia’s presence in the oil market and its revenues to be cut. As a result, a price cap implemented after hard work does not seem very effective against Russia. That is why many European countries, including Poland and the Baltic countries, are pushing for new sanctions on Russia as soon as possible. Most of the G-7 countries and the European Union plan to freeze Russian crude oil imports.
What would be the effect of a price ceiling?
After the price cap is implemented, shipping, insurance and financial assistance to companies for that oil will not be provided if companies do not purchase eligible oil. The G-7 group wants oil prices on the world market not to increase, so it is necessary to have Russian oil on the market, but its effort is to reduce Russia’s income.
The EU has also added a grace period for countries that breach the price ceiling. Penalty for violation of the proposed price limit has been significantly relaxed. Instead of an indefinite ban on ships buying oil above the fixed price, there will now be a ban on buying Russian oil for 90 days.
What will be the impact in India?
After the war in Ukraine, Russia has been selling large amounts of oil to India. India receives oil from Russia at discounted rates, due to which the oil trade between the two countries continues despite strong sentiments from other Western countries including the US. In such a scenario, the price ceiling imposed on Russian oil is now believed to affect India as well.
The same is the case for India if the price ceiling remains at $65 to $70. Because even at this point, the price India buys oil from Russia is probably only around the price ceiling.
Statement by the Indian Petroleum Minister
India’s Petroleum and Gas Minister Hardeep Singh Puri, while responding to questions on the price cap recently, said that there is no pressure on the Government of India regarding the price cap from the G-7 and the European Union. He had said that it will be seen when the price ceiling will be implemented. We are not under any fear or tension in this regard.
But apart from the Union Minister’s statement, Indian oil companies have stopped ordering crude oil from Russia. Reliance Industries, the world’s largest oil refiner, has not ordered a single Russian cargo since December 5. Bharat Petroleum has not ordered a single Russian cargo.
According to sources, Indian companies are cautious considering the risk of foreign banks’ operations. Naira, which is 49 percent owned by Russia and Rosneft, still continues to buy oil from Russia. As a result, foreign banks have been banned from transacting with the naira. Naira can now be transacted only with Indian banks.
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