What does the recent decline in international oil prices indicate about the effectiveness of price caps?

How is Russia responding to this?

What changes have occurred in India's stance?

Last Friday, the WTI crude oil price was as high as $82.5, but by this Friday's closing, it had dropped to $73.2. Within just a week, the price per barrel fell by nearly $10, with a decline of over 10%.

The United States, leading Western countries, began capping the export prices of Russian crude oil in early December and are currently gearing up to tighten the price cap, extending the scope to include refined oil products.

However, it now appears that the U.S. plan has failed.

01, Oil Price Changes

In fact, regarding the price cap on Russia, we can look at a longer period because this price cap officially came into effect in early December last year.

From the chart above, we can see that over these two months, international crude oil prices have fluctuated within a box, oscillating between $70 and $85.

This is a normal trend; regardless of the price cap, oil prices cannot rise or fall in one direction. From this perspective, the significance of the price cap is minimal.

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Moreover, previous analyses by Indian media have also indicated that the price of crude oil purchased from Russia enjoyed the largest discount, even as low as $45 per barrel, with the overall price likely to be below the U.S. $60 price cap.Because India's purchase volume is quite large, the discount is relatively significant. However, it is believed that other Asian countries also enjoy discounts to varying degrees. Therefore, for Russia's crude oil export prices, the price stipulated by the price cap is already higher than the export price.

02, Price Cap Bankruptcy

Of course, for Western countries, introducing a price cap is not only about hoping to buy crude oil and oil products at cheaper prices but also about attempting to strike at Russia's economy through this method.

However, it is quite clear that the United States' attempt has utterly failed.

A few days ago, Russian President Putin claimed that Russia's GDP for the entire year of 2022 might only fall by 2.5%. The detailed data has not yet been released, but if Russia's GDP only fell by 2.1% as of November, it will not drop much even with the addition of December.

Despite various restrictions, Russia's inflation is not high, and it is even lower than the inflation rates of many European countries.

What's even more laughable is that the United States once claimed to make the ruble worthless, but in 2022, the ruble's exchange rate has shown a noticeable increase, performing much better than the depreciation of most non-US currencies.

03, Retaliation

In addition to continuously exporting more energy to Asian countries, Russia has also initiated retaliation against countries participating in the price cap.

As early as December, Putin issued an order that all countries participating in the price cap would be unable to import Russian oil and related products, even if they are willing to pay above the price cap.In recent days, Russia has escalated its countermeasures, demanding that all oil traders must amend their contracts to prohibit the direct or indirect use of price cap mechanisms within the contracts. At the same time, Russia is also preparing to complete the price monitoring of exported oil before March 1st. It appears that Russia is determined not to allow the EU to easily purchase Russian crude oil, but rather to enable friendly countries in Asia to obtain more and cheaper energy supplies. Against this backdrop, India continues to buy and exploit the loopholes in the Western price cap to become a trader of crude oil and refined products, processing the crude oil imported from Russia and then selling semi-finished or finished products to Europe to earn substantial profits.