While India and China did not agree on the Western price cap on Russian oil, this measure will still damage Russia. Here’s why.
Russian oil and gas are finding new homes, far away from Europe, in the Indo-Pacific region. China and especially India are purchasing crude from Russia at a pace never seen before: did the Western price cap fail?
In December the G7 nations, Europe and Australia agreed upon a price cap on Russian oil. This move was immediately countered with the alright stop of crude exports from Moscow.
The price cap is set at $60 per barrel but has also a flexible clause in case of big changes in market price. In any case, oil sold at the price cap is much cheaper than that sold at current market conditions.
As of Wednesday morning Brent, the international benchmark for crude oil, is at $80,56 per barrel, $20 more than the price cap. Western nations had hoped that international oil prices would fall enough to disrupt Russian revenues, but that was not the case.
With the European market closed, Russia turned East to keep their revenues going. Though they will hardly be able to replace the exports they had before the war.
India and China: high demand, low price
Neither China nor India agreed on the price cap imposed by the West, though not for lack of effort. The United States has tried for months to get India on board but to no avail.
India needs Russian oil for their industrialization, which was previously tampered by Western colonization. New Delhi does not see any reason why they should delay their industrialization further because of a war halfway across the globe. So, despite their close relationship with the United States, India will keep buying oil from Russia.
The problem for Russia is that India is far away and there are no pipelines directly connecting them. This means that the only viable option is to send oil by ship at Russian expenses. Icebreakers filled with crude leave the port of Murmansk, near the Russian-Finnish border, enter the Mediterranean, pass through the Suez Canal and after a long journey finally reach Cochin.
India and China, despite their high necessity of oil, can afford to bring down prices. Russia too has a desperate need to keep their economy going, especially while the war in Ukraine keeps raging.
Indeed, China has already struck a deal with Russia for a $6 per barrel discount. After freight and discount costs are included, the overall price is around $70 per barrel: higher than the price cap but still not nearly enough to replenish the Russian economy.
So, for now, it can be said that the Western price cap worked. Perhaps not at the extent the Europeans hoped for, but it is definitely dealing damage to Russia.
