HomeBusinessG7's oil price cap sanctions will have little impact on Russian revenues

G7’s oil price cap sanctions will have little impact on Russian revenues

G7's oil price cap sanctions will have little impact on Russian revenues

Proposed G7 oil price cap will have no immediate impact on Russian revenues

London/New Delhi/Moscow:

The Group of Seven (G7) proposed price cap on Russian oil of $65-$70 a barrel will not have an immediate impact on Moscow’s revenues, as it is broadly in line with what Asian buyers are already paying. Five industry sources with direct knowledge of the purchases made on Wednesday.

The goal of the price cap is to deny Russian President Vladimir Putin the revenue to finance a military invasion of Ukraine, without causing major disruptions to global oil markets that would push energy prices higher.

Oil and gas exports are forecast to account for 42% of Russia’s revenue this year at 11.7 trillion rubles ($196 billion), up 36%, or 9.1 trillion rubles ($152 billion), in 2021, according to the country’s finance ministry.

The G7, including the United States, as well as the entire European Union and Australia, plans to implement price caps on marine-borne exports of Russian oil on 5 December.

India has emerged as the second largest single buyer of Russian oil after China since the conflict began in February. Indian refiners have replaced refiners in countries that have banned Russian crude imports, or distanced themselves from Russian crude to avoid negative publicity.

Two sources said some Indian refiners are paying equivalent to a discount of about $25 to $35 a barrel to international benchmark Brent crude for Russian Ural crude. The main export of Ural Russia is crude oil.

With Brent trading around $85 a barrel on Wednesday, this means Ural will be priced at $50-$60 a barrel, well below the cap.

This would indicate that Western shippers and insurers living in countries that have placed sanctions on Russia would be able to provide services to cover shipments of Russian crude without fear.

It also means Russia won’t need to make good on its threat to cut off supplies to buyers who adhere to the price cap – because the market is well below that cap anyway.

US Treasury guidance published on Tuesday said the cap is known as free on board (FOB) prices, which do not include the cost of insurance and shipping. This would be the price at which crude would be sold if a buyer were to go and pick it up from a Russian terminal.

Indian refiners generally get paid for the crude oil delivered to them. That price includes insurance and freight.

A source said India is also paying $15-20 a barrel below Brent for the delivered Ural crude. This means that the cargo delivered is also at the same level as the price cap.

Trading sources said Ural is trading for dated Brent at a similar discount of $30-$35 to other buyers. Oil produced by the approved state oil company Rosneft is on the lower end and non-Rosneft is slightly higher.

US Treasury guidance does not allow buyers in countries that have placed restrictions on the import of Russian crude, such as the United States and the European Union, to buy Russian oil even under the price cap.

($1 = 59.8000 rubles)

(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)

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