According to Bloomberg, Russia has contacted several Asian countries to discuss possible long-term oil contracts at discounted prices, as the US continues to push a plan to cap Moscow’s oil prices.
The preliminary discussions to offer some Asian buyers discounts of up to 30% may be a sign that Russia intends to stymie Group of Seven talks about making an exception for pending European Union (EU) sanctions on its oil. This plan will make it easier for third parties to obtain low-cost Russian crude oil.
Russia may also be looking for new buyers for the oil it is currently selling to Europe, but a few countries, including Indonesia, have expressed concern about being hit by US sanctions.
To recall, the EU’s sixth round of sanctions in response to Ukraine’s invasion includes a ban on Russian oil as well as third-country use of EU companies for insurance and financial services. This ban takes effect on December 5, but the United States is concerned that the current framework will significantly raise oil prices and provide Russia with windfall profits.
Some European countries have supported the idea of exempting oil sold under an internationally agreed-upon price cap from sanctions, but others have stated that such a system will only work if significant Asian purchasers of Russian oil agree to participate.
Most Asian countries’ positions on the plan are unclear, and only a few have publicly expressed support. According to people familiar with the Indian energy sector, India is hesitant to join the price-cap scheme because its industry is concerned that it will lose out on the opportunity to buy discounted Russian crude to other buyers.
The plan’s proponents hope to have it in place before the EU imposes oil sanctions in early December. Western leaders have argued that a price cap would deny Russian President Vladimir Putin much-needed revenue while also keeping global oil prices low as EU sanctions kick in.
G-7 officials are still deciding how to set the price cap. Supporters of the plan argue that even if major countries do not formally join a price-cap coalition, the arrangement could help reduce Russia’s revenues by giving those countries more leverage with Moscow to negotiate better oil contracts.
The EU must amend its sanctions package, which was only approved after a lengthy and contentious debate last spring, in order to implement the price-cap plan.
Hungary, which has maintained closer relations with Russia, may be one of the most significant obstacles in the way of the EU. So far, the landlocked country has managed to stall the agreement for weeks as the EU attempted to launch a plan aimed at Russia’s energy sector. According to international reports, Budapest has stated that it will oppose any oil price cap, indicating the possibility of yet another awkward political battle.