In principle, the ask in return is that India should not support the G7 proposal. Writes Ahmed Adel
G7 countries are hoping to secure India’s support to enforce a price cap on Russian oil. Decisionmakers in New Delhi are unlikely to be coerced though as Moscow is willing to provide petroleum at even lower rates than before.
“In principle, the ask in return is that India should not support the G7 proposal. A decision on this issue will be taken later following talks with all the partners,” the The Business Standard newspaper quoted a foreign ministry official as saying.
Comprising of Canada, France, Germany, Italy, Japan, the UK, and the US, the G7 excludes India despite the South Asian country now having the fifth largest economy, larger than the UK, France, Italy and Canada. The Western bloc, with the exception country being Japan, are looking to choke Russia’s crude oil revenue streams, but countries like India are prioritising their economy and citizen wellbeing instead of serving Washington’s agenda.
India depends on imports to meet 85% of its petroleum needs, and with Russia offering good deals to friendly countries, it became the second-largest crude oil supplier to the country after Iraq. Although Russia’s share in India’s imports rose only 1% in February, before the war in Ukraine began, it skyrocketed to 18% by June.
Russian oil was $16 cheaper in May than the average barrel of crude oil ($110) imported to India. It is for this reason that India took advantage of many countries ending their trade with Russia, which sent oil prices tumbling. Russia has so far reduced $30 on every barrel of oil it sells to India, forcing Iraq to cut its rate to $9 lower than a Russian barrel of oil. At the same time, according to Business Standard, Russian crude oil in August cost $6 less than India’s average imported barrel.
The G7 is hoping to enforce price caps on Russian crude oil and refined petroleum products. While the one on crude oil comes into effect on December 5, the other will be enacted on February 5, 2023. This is when the European Union bans Russian oil products. Although India has said it will consider all aspects before making a decision, it is unlikely that New Delhi will decide on the same self-destructive policies as the European Union.
European Commission President Ursula von der Leyen, who spoke at the European Parliament in Strasbourg on September 14 and delivered her State of the Union address, said: “It is the Kremlin that has put Russia’s economy on the path to oblivion. This is the price for Putin’s trail of death and destruction. And I want to make it very clear, the sanctions are here to stay. This is the time for us to show resolve, not appeasement.”
However, it is the economies of European Union member states that are suffering much worse than Russia now. In fact, their economies will only continue to decline as winter approaches. Russian President Vladimir Putin warned on September 7 that he will stop oil and gas supply to countries that introduce price caps.
Putin told the Eastern Economic Forum that such a move “would be an absolutely stupid decision”.
“We will not supply anything at all if it is contrary to our interests, in this case economic (interests),” he said. “No gas, no oil, no coal, no fuel oil, nothing.”
Quoting a Russian fairy tale ‘Freeze, freeze, the wolf tail’, Putin said that Russia would supply nothing outside of existing contracts.
The Munich-based Ifo think-tank warned that the recent surge in electricity and gas prices was “wreaking havoc” on the German economy and that the main cause was the expected “decline in private consumer spending” triggered by energy suppliers “markedly adjusting their electricity and gas prices in the light of high procurement costs, especially at the beginning of 2023.”
For their part, the Kiel Institute for the World Economy slashed its forecast for the German GDP next year by 4% points to minus 0.7%, warning: “With the high import prices for energy, an economic avalanche is rolling towards Germany.” Meanwhile, German deputy finance minister Florian Toncar warned of an “increasing risk of stagflation” in the country, telling the VVW insurance sector publication: “We are experiencing supply-chain problems, production bottlenecks and price increases the likes of which we haven’t seen in decades.”
Germany, as the industrial and economic centre of the European Union, will be experiencing a crisis that it has not seen since the end of World War II. The rest of the European Union will also end up in the same position, if not worse than Germany. As for India, it is this exact situation it wants to avoid, hence why it has increased its imports of Russian energy at good prices. For this reason, it is unlikely that New Delhi will be coerced by the G7 to implement a price cap on Russian oil.
Ahmed Adel, Cairo-based geopolitics and political economy researcher.