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Price cap fails to deter Russia from war

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The price cap imposed by the US and its allies has no effect whatsoever on Russia as it's going to increase its budget deficit more than the planned 2% of GDP in 2023.

New Delhi, Dec 29: Calling the action of the US and other countries 'unfriendly' and 'contradictory to international law', Russia has banned its oil exports to countries which are implementing the price cap. President Vladimir Putin's move comes weeks after the G7 countries, European Union and Australia imposed a price cap on the Russian seaborne crude oil.

In fact, the price cap has been put at $60 per barrel which, according to the latest price, is slightly above the current price anyway. Russia has been utilizing its crude oil to fund its war efforts in Ukraine. Not just that, it received greater margins and gained windfall profits from its oil exports.

Price cap fails to deter Russia from war

Will the 'cap' help?

Russia has been carrying out war activities against Ukraine for nearly 10 months now, even when most of the world is against it, especially the West. The US, the European Union and their allies have not only failed in stopping Russia from continuing with war, they have also not been able to convince other regional powers like India and China in their efforts to contain Russia.

With the G20 Presidency and New Delhi’s unique position, why India could resolve the Russia-Ukraine conflictWith the G20 Presidency and New Delhi’s unique position, why India could resolve the Russia-Ukraine conflict

Needless to say, the latest decision to put a cap on the price of seaborne Russian crude oil is another effort that is aimed to contain Russia and push it hard to withdraw from Ukraine. Russia is not only the world's second largest oil exporter after Saudi Arabia, it has also been a major force that determines the crude prices.

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Russia unrelenting

It's not that the Western countries have been doing this kind of stuff against Russia for the first time, they have tried all kinds of tricks under their hats without any results. Even the tactics of putting a cap on the crude export price, according to the analysts, will have little immediate impact on the oil revenues that Russia has been obtaining.

President Vladimir Putin signs decree to ban sale of countries backing price capPresident Vladimir Putin signs decree to ban sale of countries backing price cap

Now, sceptics are asking: Will the cap widen the budget deficit of Russia? Even if there is a slight increase in the budget deficit, Russia could manage it pretty well. Russian Finance Minister Anton Siluanov has already said that the country's budget deficit could be wider than the planned 2% of GDP in 2023. Could it deter Russia from continuing with the war? Only time will tell, so fingers crossed.

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