India is not inclined to accept the G7 leaders’ plan of placing a cap on the price of Russian oil as a means to limit the country’s ability to fund the Ukrainian war, for the move could hurt its interests in case Moscow refuses to sell at the capped price due to possible losses, a source tracking the matter has said.

“Placing a price cap on Russian oil may result in Moscow cutting down on its exports to India as it may not be feasible for it to transact at reduced prices. So, while the Western nations may not be placing a sanction against the sale of oil, in effect the move could dent Russia’s oil exports to India. There is no reason for New Delhi to accept this as it has been getting Russian oil at a competitive price,” the source told BusinessLine.

Protecting one’s interests

At the recent summit of leaders from G7 nations — comprising Britain, Canada, France, Germany, Italy, Japan and the US — it was decided to explore the option of imposing a ban on transporting Russian oil that has been sold above a certain price. The idea was to reduce Moscow’s earnings and deplete its war funds. The communique released at the end of the three-day summit in Elmau, Germany, stated that the nations wanted to explore further measures to prevent Russia from profiting from its war of aggression.

The fact that G7 seems to be focussed on capping Russian oil prices, while not being transparent on what their plans on capping gas prices are, has oil importing countries like India wondering if European countries were protecting their own interests, the official added. There are speculations that the EU nations may miss their plans of replacing two-thirds of Russian gas imports this year.

Russia has been selling its crude to countries such as India and China, at heavy discounts of an estimated $30-40 per barrel, compared to benchmark Brent crude prices of over $100 per barrel, following the West’s economic sanctions against it. However, there is no sanction yet on the sale of oil and gas.

Recession fears

While some proponents of the price cap have argued that it would be favourable for buyers like India and China who would get oil at a lower price, the reality may be very different as Russia may just refuse to sell at losses, the source said.

“One must also think about what happens if Russian oil is not sold. The increased demand from the Middle East will make global prices sky rocket. Developing countries will then be forced to buy the higher-priced oil and it could ultimately lead to a global recession,” the source added.

India has emerged among the top 10 buyers of Russian oil since Moscow’s invasion of Ukraine in February 24 and accounted for 18 per cent of India’s crude imports in May 2022, up from 1 per cent before the war, according to a report by Finland-based independent organisation Centre for Research on Energy and Clean Air (CREA).