The oil price cap

July 03, 2022
Sunday

Since Russia announced its invasion of Ukraine, the global community has been experiencing uncertainty in many sectors, be it the global food crisis, be it the oil crisis, or be it the global market crisis. Ukraine and Russia were the major global agriculture exporters, which include wheat, maize, rapeseed or sunflower oil, and so on. The prices of oil and agricultural produce are, soaring since the start of the invasion.

The weakening of the Russian ruble was followed by a greater comeback thus strengthening the Russian ruble ultimately. I was wondering how Russia keeps on strengthening its currency value despite such a global catastrophe, but, then I learned that followed by energy, gold is Russia's second-largest export industry. And, Russia was actively exporting its gold reserves to various countries for a more liquid foreign exchange.

The energy export of Russia is, being sanctioned by many countries with a plan to roll out Russian oil completely from a few countries. And, Russia is exporting its energy to some countries at a greater price, and at the same time, it is exporting its energy to a few countries at a discount price. Despite heavy sanctions on Russian energy industries, Russia was able to gain a net profit from it. And, this energy industry is termed a 'war-funding machine' of Russia.

Recently, G-7 countries concluded a meeting in Germany, and the motive of this forum's meeting was utterly inclined to find a way to obstruct the war-funding machines of Russia. Thus, G-7 countries decided to ban gold imports from Russia and also is proposing an "oil-price cap." You must have already deciphered that this oil price cap is supposed to put a cap on the oil prices of the Russian energy industry as you have read above that Russia is selling its energy at higher prices to some of the countries due to the proposed roll-out of Russian oil completely from their system. Now, the question arises why the countries are even buying Russian oil at an increased price? The European countries depend heavily on Russia for their energy consumption. And, if they try to roll out the import of Russian oil swiftly, the countries would fall into a market failure.

Now, if you are thinking that this proposed oil price cap would restrict Russia from selling its energy at a higher price and it will pre-empt European countries from paying excessive prices for Russian energy then you're very opinionated. This oil price cap plan on which G-7 countries is planning to aboard various other nations will exploit all those nations who are in their developing phase. The Russia will tomorrow say either you pay the price or forget the energy, and since there is already a heavy demand in the market it will exacerbate the inflame in oil prices, as there is heavy demand and other oil producing countries are not able to meet the soaring demand which will arise if Russia denies selling under the band of the price cap, there will be devastating market disbalance. And, the developing countries will be the most affected.

In conclusion, all the countries who are aligned together to stop Russia from its arbitrariness rather than finding a way to push the global world into another disaster must find a way to put the world together for a greater harmony and preclude the disasters from happening. And, these countries must be able to persuade other oil producing countries to increase their production substantially.

Thank you.

This article is republished by me on fairaffairs.wordpress.com