Economic consequences of the Russian oil ban

Economic consequences of the Russian oil ban

The price cap of $60 per barrel for Russian oil, imposed by the EU and the G7, may destabilize the market and have unforeseen consequences, commented the analytical platform East Asia Forum.

Current buyers of Russian oil, India and China, can demand even greater discounts on supplies because they know Russia has limited options. If Russian oil prices fall below production costs, estimated at $35-40 per barrel, Russia may temporarily suspend oil exports or stop production altogether, the Forum said.

New rise in prices and inflation

Another major player, the Organization of the Petroleum Exporting Countries (OPEC), would respond to a drop in oil prices by cutting production to increase global oil prices rapidly. Restarting Russian oil operations after a temporary shutdown is also difficult and time-consuming, delaying the delivery of Russian oil to the market.

A destabilized oil market could be disastrous for the global economy, reducing global oil supplies long-term and raising energy prices and inflation. This would undermine the global fight against inflation and encourage the US Federal Reserve and other central banks worldwide to continue with an aggressive monetary policy, notes the East Asia Forum.

And Indians are taking advantage of such a situation massively. They sent 89,000 barrels of gasoline and diesel daily to New York last month. This is the most in the last four years, according to the data of the analyst firm “Kpler.” In addition, low-sulfur diesel going to Europe each day reached 172,000 barrels, the most since October 2021.

And then there was still no ban on the direct import of Russian diesel, which started today. That ban will make Asia even more important for supplying Europe with the fuel that powers almost every business. This is also a huge challenge for Indian refineries because they have to process also for the domestic market, which is 85 percent dependent on oil imports.