Price cap restrictions on Russian crude oil by western countries

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Price cap restrictions on Russian crude oil by western countries 

  • Recently western countries have imposed price cap (highest price limit) restrictions on crude oil of Russia.
  • Group of G-7 countries, European Union and Australia have imposed a price cap of $60 per barrel on Russian crude oil.
  • This has been done in view of Russia’s invasion of Ukraine.
  • Russia is among the top three crude oil producing countries in the world.
  • The main purpose of imposing a price cap is to limit Russia’s income from fossil fuels. Western countries believe that Russia is using this income to conduct military operations in Ukraine.

What is meant by imposing a price cap?

  • For countries joining the price cap alliance, this would mean that they would not buy Russian crude until its price reaches the specified price cap.
  • Russia can continue to sell at prices above the price cap, but it will not have access to services such as insurance, currency payments or vessel clearance for carriers carrying oil from Western countries.

Effect of price cap

  • This would disrupt oil market operations and have a detrimental effect on the global oil industry.
  • Unless Russia uses its own ships to transport crude oil or explores some other alternative route for supply, countries like India can find other sources as an alternative to Russia’s cheap oil Will prove challenging.

G-7 Group

  • It is an inter-governmental organization, which was formed in the year
  • The bloc meets annually to discuss issues of common interest such as global economic governance, international security and energy policy.
  • The members of the G-7 are Canada, France, Germany, Italy, Japan, the United Kingdom and the United States.
  • All the G-7 countries and India are part of the G

Source – The Hindu

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