News Highlight
Japan purchasing oil from Russia at a price above the $60 per barrel price cap imposed by the West, according to reports this week.
Key Takeaway
- According to reports this week, Japan has been importing oil from Russia at a price higher than the $60 per barrel price cap imposed by the West.
- This has fueled speculation that Japan is violating a last-year deal to control the price of Russian oil.
- Beginning in December, the G-7 countries, the EU, and Australia put a $60 per barrel price restriction on oil purchased from Russia.
- The move was part of broader economic restrictions implemented by the West in response to Russia’s invasion of Ukraine.
- The West wants to limit the amount of money Russia can gain from exporting its oil while not jeoparde global oil supply.
- Because Russia accounts for around 10% of global oil production, any large drop in Russian oil supplies might cause oil prices to skyrocket.
- A barrel of oil is expected to cost Russia between $20 and $45 to produce.
- As a result, the West believes that even at $60 a barrel, Russia will maintain its oil output.
Price cap plan
- About
- It is a type of economic regulation limiting a utility provider’s pricing.
- The price ceiling proposal is the most recent in a series of penalties advocated by Western countries against Russia.
- It will likely be finalised during the G-20 meeting in Bali in November and take effect on December 5.
- Russian crude is priced below the international Brent benchmark, and the G7 wants to keep the spread broad to limit Russian oil earnings.
- Other countries, including India and China, are being sought by the G7.
Russian Response to the price cap
- Russia refused to abide by the measure
- Russia has stated that it will not adhere to the cap and will suspend deliveries to countries that do.
- Retaliate by shutting off the shipments
- Iran might react by halting shipments to earn from a much higher global oil price on whatever it can sell without sanctions.
- Russia said price cap would not hurt financing the war
- Russia recently stated that the cap would not impact funding its “special military operation” in Ukraine.
- Other buyers may bypass the restrictions
- Buyers in China and India may object to the cap.
- Russia or China may attempt to establish their insurance providers to replace those blacklisted by the US, UK, and Europe.
- It is also likely that these countries will devise novel ways to circumvent the G7’s constraints.
How will the ban affect crude oil prices?
- Analysts believe that as long as Russian crude oil supplies remain stable, crude oil prices, which are already above 14-year highs, will remain stable.
- Brent crude was trading at $130.8 a barrel, up 34% since Putin announced military operations in Ukraine.
- Oil is a highly volatile and delicately balanced global commodity.
- Any disruption in supply has a disproportionate influence on prices.
- As long as Russian crude supplies continue, this is merely a symbolic step by the US.
- Economic sanctions the United States and Europe imposed have already impacted Russian crude oil shipments.
How are rising crude oil prices going to affect Indian consumers?
- The significant increase in crude oil prices comes after a four-month reprieve from growing gasoline prices.
- The oil marketing companies (OMCs) holding the price of petrol and diesel unchanged since early November.
- With elections completed in Uttar Pradesh, Punjab, Uttarakhand, Manipur, and Goa, customers should expect a consistent hike in fuel prices to begin this week as OMCs.
- They seek to bring pricing in line with worldwide benchmarks and recoup losses.
- For OMC marketing margins to remain constant, the price of petrol and diesel must be increased by approximately 52 paise for every dollar increase in crude oil.
- Since petrol and diesel prices last raised in November, crude oil has climbed by roughly $50 per barrel.
The status of the Oil Industry
- The United States is the world’s leading producer and a net exporter of crude oil.
- In 2021, Russian crude oil accounted for approximately 10% of US oil imports but over 30% of European oil imports.
- Russian crude oil is easily refinable, unlike Venezuelan oil requiring extensive distillery adjustments.
- Russian crude is easily extracted, lowering the operating cost of the entire process and translating to a lower price tag.
- Russia is the world’s second-largest producer and exporter of oil.
G7 nations
- About
- It began in 1975 as the Group of Six, with a conference of leaders from the United States, United Kingdom, West Germany, Italy, France, and Japan in response to the oil crisis and global currency exchange concerns.
- Canada joined in 1976, completing the G-7.
- The EU’s leaders are always invited to G-7 meetings.
- Russia was admitted to the G-8 in 1998.
- Nevertheless, following Russia’s wars with Georgia in 2008 and the invasion of Crimea in 2014, the club permanently expelled Russia.
Pic Courtesy: The Hindu
Content Source: The Hindu