Page 5 - FSUOGM Week 28 2022

FSUOGM COMMENTARY FSUOGM

US Treasury Secretary Janet Yellen

continue collecting cash for oil sales for its “war regime against Russia, or cut down on oil imports
machine,” the person said. from the country. In fact it has actually ramped
The US will also reach out to India in the up supplies from Russia, taking advantage of the
coming weeks in the hope of securing its sup- heavy discount that the Urals oil blend currently
port. A source told Reuters earlier this month trades at compared to Brent. Russia today is its
that G7 governments were still determining second-largest oil supplier.
which services for oil transport could be with- White House national security advisor Jake
drawn for Russian cargoes where the price cap Sullivan said in late June that talks with India
is not observed, including shipping services, regarding the cap had begun. However, New
insurance, trade finance, brokering of cargoes Delhi is yet to publicly signal either its support
and other services. or rejection of the proposal. Discussions are
also taking place with China, which Russian oil
Obstacles imports hit a record nearly 2mn barrels per day
Previously it has been suggested by officials (bpd) in May, as its refiners cashed in on dis-
that the price cap could be set at or close to counted supplies.
Russia’s marginal cost of production, mean- Under the price cap, India and China would
ing that the Kremlin cannot make any profit be able to buy Russian oil at even lower prices,
from its oil exports. The reasoning is that Rus- giving them an incentive to sign up. But both
sia would still continue producing its crude, could be reluctant to join, through fear of reper-
because the alternative would be the costly cussions from Moscow – namely cuts in oil sup-
shut-in of fields and the loss of strategic mar- ply. And China is very unlikely to agree to a plan
kets overseas, which could cause irrevocable that if successful would financially cripple Rus-
damage to its oil industry. On the other hand, sia, given the two countries are increasingly close
this incentive may not be enough and Rus- political allies, united largely by their opposition
sia could react drastically, by cutting oil and to US hegemony.
possibly gas exports to Europe, even if this was Japan looks firmly on board with the price
against its own interests. cap, and its prime minister, Fumio Kishida, on
Critically, of course, the price cap also needs July 4 proposed that the cap be set at around half
as much worldwide support as possible in order the current price of oil. And South Korea looks
to work. And a lot will depend on whether India similarly keen. But without the support of India
comes on board. The country has maintained a and China, and indeed likely many other buyers
neutral stance regarding the war in Ukraine, and around the world, the cap could prove ineffec-
has refused to join the international sanctions tual. ™

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