'Price cap' on Russian fuel worrisome for fuel-producing countries

Washington/Moscow: ‘I don’t think anyone likes it. We don’t know how far it will go. Today, it’s Russia. But tomorrow, that can change, and it could be a global price cap. That would be extremely serious,’ warned Oman’s Minister of Fuel, Salim Al-Aufi. Oman is a leading country in OPEC, an organisation of fuel-producing countries, and is known as the leading oil-producing country in the Gulf. Hence, the warning issued by the Omani minister becomes noteworthy.

In the wake of the Russia-Ukraine conflict, many European countries, including the United States and the United Kingdom, have stopped directly importing Russian fuel. However, it has frequently come to light that many of these countries were buying Russian fuel in different ways. Last week, the G7, the European Union and Australia announced that they had approved a proposal to keep the price of crude oil exported from Russia at $60 per barrel. After that, the cost of Urals crude oil, Russian oil in the international market, has come down to as much as $54/barrel.

Although the fuel market has not yet suffered a major shock due to the ‘price cap’ imposed on Russia, it will have to face a major crisis in the future; the Omani minister’s warning issues such indication. Russia has warned of cutting crude oil production and exports in protest against the ‘price cap’ imposed on it. At the same time, international analysts have repeatedly been pointing out that the ‘price cap’ will hit European countries the hardest.

Suppose the fuel demand in China increases in the coming times. In that case, crude oil prices will increase significantly, and the fuel shortage and inflation crisis in Europe will become more intense, warned an Italian analyst Demostenes Floros. Floros also pointed out that the ‘price cap’ will not significantly affect Russia’s income. Fuel sector companies and analysts have claimed that five lakh barrels or more of Russian oil will drop from the international market. However, Russian officials have clarified that Russia will make every effort to supply crude oil to other countries as per previous agreements.

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