TOKYO, July 6. /TASS/. It would be hardly possible to effectively put into practice the mechanism of price caps on Russian oil, discussed at the G7 summit in Germany, since it would require cooperation from other states such as China and India, Japanese experts have told TASS.
"The price cap on oil would be difficult to be effective. First, Russian oil has been traded at a much cheaper price than the market price (WTI or North Sea Blend). The G7 countries will deny buying the oil from Russia if it is above the ceiling, but other countries such as China or India may buy at a higher price (which can be still cheaper than market price)," said Kazuto Suzuki, Professor, Graduate School of Public Policy, University of Tokyo.
"So If Japan wants to make the measures to cap the price effectively, it needs all the buyers of Russian oil to follow the same rule," he added.
President and founder of Post-oil Strategy Institute Noriaki Oba expressed a similar opinion, saying that the idea cannot be implemented without the participation of at least China and India, whom he described as "countries that have not joined the anti-Russian sanctions and that are home to more than a half of the planet’s population."
"And under the present-day political circumstances this would be impossible, I believe," he told TASS.
Besides, Oba expressed doubts that the price cap idea would be realistic from the economic perspective. In his words, a mechanism of this kind would lead to a flow of potential customers willing to buy oil at a low price.
"However, Russia’s delivery volumes are limited. It would be impossible to mitigate the sense of injustice experienced by countries that will have to buy oil from other locations, at market prices that are way higher," the analyst said.
He also warned about the possibility of Russian oil re-exports from countries that have an opportunity to buy it at low prices.
"Therefore, Russia’s incomes will grow if those countries form a collusion team with Moscow. Besides, OPEC+ countries are unlikely to remain silent if market prices are brought down by this [mechanism]," Oba said.
Speaking about practical measures that may help to implement the price cap mechanism, the expert said that "the variant of regulation involving the system of [oil] tanker insurances is now being pondered upon." However, European countries actively engaged in transportation by sea, such as Greece, actively oppose this scenario, he said.
"In fact, G7 countries have practically no leverage for reducing Russia’s oil incomes," he said.
The expert suggested that the issue was raised to "demonstrate the tough stance and reaffirm unity with the mere fact of discussions."
Sanctions possibly in deadlock
Takahide Kiuchi of the Nomura Research Institute also believes that the implementation of Western-backed measures would require cooperation on the part of developing nations. In his view, the leadership and authority of G7 on the global arena has declined to a certain extent.
In an opinion piece on the institute’s website, the researcher wrote that Western nations were experiencing a "double blow" from its decision to stop importing Russian oil: on the one hand, the move is detrimental for their economies, while on the other it makes oil from other regions more expensive.
"The fact that the G7 summit statement includes a provision on capping Russian oil prices clearly demonstrates that sanctions against Russia are in a deadlock," Kiuchi wrote.
Oil cap initiative
The embargo imposed by the European Union and the United States on Russian oil led to a sharp increase in prices, which allowed Russia to reroute large volumes of the commodity to other markets, primarily to India and China. Therefore, even though selling smaller volumes of oil at a discount, Russia has increased its revenues as a result of Western sanctions, while the EU and the US are suffering, including the spillover effect in the form of inflation.
In a statement adopted following the G7 summit in Germany, the leaders of the member countries vowed to consider the possibility of limiting prices for Russian oil by banning its transportation by sea if the price of oil exceeded a ceiling that would be set by ‘international partners.’
Russian Deputy Prime Minister Alexander Novak called the steps towards limiting the price of oil from Russia another attempt to interfere in market mechanisms, which, according to him, can only lead to an imbalance in the market and a shortage of energy resources, and consequently to an increase in prices.