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Tuesday, November 29, 2022

Is G7 Price Cap Against Russia Doomed To Fail? | Energy Crisis in Europe | Russia-Ukraine War

Russia must be punished. That’s the line every Western nation has taken since February this year. In February, Russia invaded Ukraine and unleashed on Europe the largest war on the continent since World War II.

Despite its war, Russia continued earning unprecedented amounts of money from around the world by selling it’s oil and gas. Long story short, the United States and its allies did not really like this.

They were bought by how a significant portion of the world did not get trapped in moral arguments of Russian oil being soaked in blood. So the wealthiest nations of the world got together, and they’ve now come up with a way to supposedly cripple Russia’s ability to earn big out of energy exports.

The United States and its G7 allies plan to cap prices of Seabourn Russian oil shipments beginning December 5. The price cap could be in line with the historical average of barrels. The idea is to bring a drastic fall in Russia’s energy export revenues, but at the same time, ensure that Putin does not stop selling oil to the world.

You see, the availability of Russian oil in global markets is essential to keep crude prices in check. Without Russian supplies, prices could go over the roof and incredibly hurt Western consumers. Essentially, the G7 countries and Europe know that their plan to price the cap of Russian oil can backfire in more ways than one.

Yet they are pressing forward. Just to put things into perspective, Russia is the world’s second-largest crude exporter. After Saudi Arabia’s absence of Russia, Russian oil could wreak havoc in global crude markets.

In fact, the mere threat of Russian oil no longer being available. That has the same impact, and Vladimir Putin knows this. Putin has vowed to reduce exports to countries that participate in the cap.

However, to think that Russia would sit idly by as the west tries to cripple its revenues would be wise. Russia is in an advantageous position in the whole price cap fiasco. You see, industry insiders believe that Russia has the ability to keep 80% to 90% of its oil flowing outside the price cap mechanism.

Using Russian and other non-western ships and insurance, Russia could also lower the production of crude oil, leading to prices rising globally. India and China, perhaps the biggest buyers of Russian oil, are not on board.

The price cap mechanism. The OPIC Plus is not happy with the price cap mechanism that targets Russian oil but puts the global oil market in peril. In essence, the G7 price cap is not as popular with much of the world as some would believe.

It could boomerang to hurt global crude. Prices while causing minimal damage to Russia, which can rather easily bypass the price gap within a matter of weeks. An outreached OPEC Plus could further slash.

Production under the influence of Russia. Moscow has already proved that it can greatly influence decisions within the OPIC Plus. So has the G7 made a big mistake by announcing a price cap on Russian oil?

And how effective do you think it will be? Know what you think in the comments.

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