U.S. Discusses with India a Price Cap on Russian Oil

U.S. efforts to put a price cap on Russian oil have been kicked off by discussions with large consumers, including India. It will also start soon with smaller consumers from Africa and Latin America.

G7 nations have agreed to explore options to put a price cap on Russian oil during the group’s summit this week to punish Russia for its invasion of Ukraine.

U.S. National Security Adviser Sullivan said they have begun talks with India about the price cap and what implications it would have.

Talks will also start with African and Latin American nations, which are smaller but important customers of Russian oil.

The U.S. officials want to make sure that smaller consumers have access to the market. Talks with global energy companies will also begin in the near future.

A price cap plan aims to reduce the revenues Moscow gets from its oil exports that help fund its war on Ukraine. It would band consuming countries together to force Russia to sell oil only at a steep discount and would likely tie financial services, insurance and the shipping of oil cargoes to the price ceiling. A shipper or an importer could only get these if they committed to a set maximum price for Russian oil.

Supporters of the plan say it would not trigger a spike in global oil markets as it would only hit Russia’s oil revenues, not the volumes sent to markets.

Critics, on the other hand, think there are many barriers to that plan, including how to enforce the cap, which has never been imposed on an exporter of Russia’s scale. Russia could also retaliate by withholding oil from the market, although doing so would likely force producers to cap wells, a costly procedure.

The talks with consumer countries aim to fashion the exact price cap mechanism as the European Union prepares to ban most Russian oil imports by the end of the year.

U.S. Treasury Secretary Yellen, who has been promoting the price cap at home and with allies, said: “Following the (G7) leaders’ direction today, the Treasury Department will work expeditiously with our counterparts in G7 countries, and other global allies and partners, to advance this effort.”

In April, Biden told Indian Prime Minister Modi it was not in India’s interest to increase its imports of energy from Russia.

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