Moscow was hit in its oil exports by sanctions following President Vladimir Putin‘s decision to invade neighbouring Ukraine in February 2022. But the Russian oil still needs to flow, albeit in much-reduced quantity, to avoid a disastrous crash in the market, an expert said.
Samir Dani, author and professor at Keele University, explained why G7 countries have decided to put a cap on the cost of Russian oil per barrel rather than completely ban it from the market.
He told Express.co.uk: “It is not a complete ban on the Russian export of oil, but the cap aims at reducing the revenues that Russia gets through the sale of the oil.
“In terms of the G7 countries, they’re doing this so that it does not cause an oil crisis and it does not cause further inflation.
“So the G7 countries are keeping the oil flowing through the world, but trying to reduce the revenue that Russia gets for its economy.”
Members of the Organization of the Petroleum Exporting Countries (OPEC) have also taken measures in recent months to regulate the flow of the oil – albeit with the intention to stabilise the prices, Professor Dani said.
He said: “OPEC countries have reduced the supply of oil into the market because they saw that the prices were going down.
“So the OPEC countries have reduced about 3.6 billion barrels a day in terms of what they produce to stabilise the prices, and that has pushed up in recent time the price of crude oil in the open market from $80 a barrel to $85 a barrel.”
Speaking of a “whole worldwide balance” being carefully handled by influential nations around the world, the professor continued: “The US and G7 countries have kept the supply of oil from Russia, because they know that if this oil stops, it will cause an immediate crash in the market, it will cause inflation rising, it will cause issues even worse than those we have seen happening in the West in recent months, such as the cost of living crisis and the cost of living goods.”
While the UK only buys a small percentage of Russian oil exports, the nation would also be hit by the crash.
He said: “The UK has to rely on the open market prices and it would get affected in that way, in terms of the oil.”
Over the past months, as several rounds of sanctions have been enforced against Russia, commentators have argued over the efficacy of these measures.
The cap enforced by the G7 nations, Professor Dani believes, has so far been “successful”. However, at the same time, it has helped countries including China and India, who haven’t condemned the invasion of Ukraine launched by Moscow, enjoy “cheap oil” and absorb a major chunk of the exports previously directed at the EU.
While these Asian markets are good news for Russia as it continues to be able to sell its oil despite its aggression against Kyiv, Professor Dani noted they are not enough to make up for the loss of clients in the West. He said: “The revenues are down in terms of the Russian oil exports, but the oil is flowing.”
Last month, figures shared with the Independent by commodities tracking firm Kpler showed that, despite the sanctions, Russian crude oil exports were back above levels seen before the attack on Ukraine.
India and China, the study showed, have been accounting in recent months for 90 percent of Russia seaborne crude oil exports.
However, given the discounted rates at which they are buying, Russia‘s oil revenues in March were 43 percent down year-on-year when compared to figures from 2022, the report showed, in line with Professor Dani’s analysis.