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CAP ON RUSSIAN SEABORNE OIL PRICES

5th December, 2022

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Context

  • The Group of Seven (G7) countries have imposed a cap on Russian seaborne oil prices in an effort to limit Moscow's ability to finance its war in Ukraine.

 

Details

  • The cap, is to be enforced by the G7, the European Union and Australia, in addition to an EU embargo on imports of Russian crude by sea, and similar pledges by the United States, Canada, Japan and Britain.
  • Russian oil will only be allowed to be shipped to third-party countries using G7 and EU tankers, insurance companies, and credit institutions if the cargo is bought at or below the price cap.

Russia’s repercussion

  • Exporting oil and gas to Europe has been a major source of Russian foreign currency earnings since Soviet geologists discovered oil and gas in the swamps of Siberia in the post-World War Two period.
  • Russia has said it will not abide by the measure and will not sell oil that is subject to the cap, even if it has to cut production.

 

How would oil keep flowing to the global economy?

  • Universal enforcement of the insurance ban, imposed by the EU and U.K. in earlier rounds of sanctions, could take so much Russian crude off the market that oil prices would spike, Western economies would suffer, and Russia would see increased earnings from whatever oil it can ship in defiance of the embargo.
  • 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 customers shunned it even before the EU ban.

https://indianexpress.com/article/explained/explained-economics/russia-oil-cap-ban-explained-8303813/