Leaders of the world’s seven richest countries meeting at Schloss Elmau in the Bavarian Alps in Germany have taken two decisions at the Group of 7 (G-7) summit that are of interest to India. One, a cap on Russian oil prices, and, two, an infrastructure fund aimed at giving China’s Belt and Road Initiative (BRI) a run for its money.
The oil cap suggestion had been in the works for months. The G-7 countries —US, Canada, Germany, UK , France, Italy, Japan— are working on a plan to cap prices of oil shipments from Russia to reduce profit margins on oil exports. Will this affect India?
No. India, like China, is now buying oil at discounted rates from Russia. And a cap on oil prices will have little impact on either. In fact, developing countries are always on the lookout for oil at cheaper prices.
The details will have to be worked out before such a plan can be implemented. Announcing intentions is much easier than getting them to work. The G-7 nations may find it incredibly difficult to implement this decision.
“Announcing a cap on oil pricing is really scraping the bottom of the barrel as far as sanctions go,” says PS Raghavan, a former Indian ambassador to Moscow.
However, for the moment the message going back to their domestic constituency is positive, that democratic governments have closed ranks to teach Vladimir Putin and his Russian coterie a lesson.
When we demonstrate all that democracies have to offer – I have no doubt that we will win the competition every time. pic.twitter.com/Va1GDwPk3j— President Biden (@POTUS) June 27, 2022
US President Joe Biden, unlike his predecessor Donald Trump, has been able to get all of Europe to back him. At a time when Biden’s domestic ratings are down, showing leadership in confronting the Ukraine crisis helps to salvage his image.
A senior Biden administration official said at a news briefing, “The goal here is to starve Russia — starve Putin of his main source of cash and force down the price of Russian oil to help blunt the impact of Putin’s war at the pump.
“As I’ve said repeatedly, we have dual objectives here. The dual objectives of G-7 leaders have been to take direct aim at Putin’s revenues, particularly through energy, but also to minimise the spill overs and the impact on the G-7 economies and the rest of the world.”
Much will depend on how this will finally pan out as the price of oil cannot be controlled by political leaders outside the oil producing nations. Oil politics and pricing is really the subject of the Organisation of Petroleum Exporting Countries (OPEC).
While the main focus at the summit was the Ukraine War and punishing Russia, China was not forgotten. China’s growing economic and political clout across Asia and Africa, and the popularity of Xi Jinping’s Belt and Road Initiative (BRI), is a challenge to the United States and its allies.
It is also true that some of major Chinese infrastructure projects have led to nations like Sri Lanka getting into a debt trap. So to counter the Chinese “way of doing things”, the G-7 is launching a $600 billion infrastructure fund to give BRI a stiff competition. The new scheme —a renamed Partnership for Global Infrastructure and Investment— is a revised version of the “Build Back Better World” pushed during the last G-7 Summit in the UK.
By promising a more transparent deal to build infrastructure in developing countries of Asia and Africa, the US and its Western allies will pose stiff competition to China’s ground-breaking initiative that had developing nations line up for much needed funds for roads, highways, ports, and other projects. The poorer nations are desperate to build infrastructure to enhance economic development.
Apart from India, nearly all of South Asia had signed on to China’s silk route project. The China-Pakistan Economic Corridor (CPEC) that includes the Gwadar Port in Balochistan is at the heart of Xi’s BRI. But in recent years, security has become a major concern as attacks on Chinese engineers and workers by Baloch nationalist groups have raised alarm bells in Beijing.
China has its footprints across Africa. In recent decades, China has been first off the mark in Africa. Even before the BRI was on track, China had made huge investments on infrastructure projects across the continent. The Forum on China-Africa Cooperation has been functional since 2000.
Biden said, “Developing countries often lack the essential infrastructure to help navigate global shocks, like a pandemic, so they feel the impacts more acutely and they have a harder time recovering.”
“That’s not just a humanitarian concern, it’s an economic and a security concern for all of us,” said the US President while making the announcement. New Delhi will welcome this announcement. India is committed to working with Japan and the US in third countries.