India can benefit from the price cap imposed on Russian oil by the G7: US officials

India can benefit from the price cap imposed on Russian oil by the G7: US officials

The Group of Seven (G7) nations are set to hold a meeting to impose a price cap on future Russian oil purchases, said the US officials, adding that India is going to benefit from this bid irrespective of its direct participation in the price cap mechanism. This comes days after Washington indicated that it hopes India and China to back its proposal to cap Russian oil. 

“India will have access to a lower price of affordable energy. It can leverage the price cap to negotiate a lower price with Russia. It is consistent with a price cap,” said Elizabeth Rosenberg, the US treasury department’s Assistant Secretary for Terrorist Financing and Financial Crimes. She added, “We will not allow Russia to profit and get a war premium for invading Ukraine.” 

The officials in Washington have told the reporters that the proposed price cap will factor in the cost of production and economically incentivise Russia to keep exporting oil, as the price of oil has skyrocketed in several countries amid high inflation. Reportedly, the G7 countries, US, UK Canada, France, Germany, Italy, and Japan, control nearly 90 per cent of insurers and vessels that Moscow relies on to transport oil. Furthermore, officials have also indicated that Russia is already a part of several long-term contracts with buyers offering huge discounts, which means that the price cap mechanism will work. 

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The proposed price cap will apply to Russian oil and the G7 countries’ plan to ensure that it is being adhered to is that any service provider including, transport, banking, insurance, and others from the G7 countries has to attest that the oil from Russia is being purchased below the price cap and have to be compliant. “It is not a global cap, it is G7 cap, we are using G7 reach and influence, in this everyone wins except Russia,” said Ben Harris, the US assistant secretary for economic policy and a counsellor to the secretary of the treasury, to the media.

This comes days after US deputy treasury secretary, Wall Adeyemo, during a press conference, on Tuesday, said that the US hopes that India and China will join the price cap mechanism or take advantage of it, to lower Russia’s earnings from the oil exports. He also indicated that the treasury department is seeking compliance with the price cap mechanism, and in order for it to be effective, they need assistance from those providing financial services to implement it. 

However, experts have warned that the US-led initiative can backfire as it could push Russia to shut down its oil production causing the crude oil price in several countries to rise further. Earlier this week, Nikolai Shulginov, Russia’s energy minister warned that if the price cap mechanism is implemented Moscow would retaliate by sending more crude oil supplies to Asian countries. “Any actions to impose a price cap will lead to (a) deficit on (initiating countries’) own markets and will increase price volatility,” said Shulginov. 

India is yet to respond to the proposed initiative, while it remains one of the largest importers of oil in the world and uses imported oil to meet more than 80% of its needs. Furthermore, amid western sanctions imposed on Moscow, India has drawn widespread criticism for its oil imports from Russia. However, New Delhi on multiple occasions has defended its stance citing discounted rates of Russian oil and ease of burden on its economy, as the prices soared following the conflict in Ukraine. 

Responding to a question regarding India’s participation in the price cap mechanism, Hardeep Singh Puri, India’s Petroleum and Natural Gas Minister, indicated that there are a large number of factors and the country is still assessing whether to support the proposal. “Now, what will the proposal mean? We will look at it very carefully,” said Puri on Monday, in the context of how the world economy is still reeling from the impact of the Russian invasion of Ukraine and the coronavirus pandemic. 

When asked if he feels morally conflicted about buying Russian oil amid the ongoing invasion of Ukraine, Puri responded, “No, there’s no conflict. I have a moral duty to my consumer. Do I as a democratically elected government want a situation where the petrol pump runs dry? Look at what is happening in countries around India.” This comes weeks after India’s external affairs minister Dr S Jaishankar echoed a similar sentiment of Russian oil imports being the “best deal” for the country. 

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