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Oil price cap to preserve supply, enable countries like India to lower energy costs: Michael Pyle

In an interview with Aanchal Magazine, Pyle justified the high price cap level of $60 saying that the discussions over the price cap level started at a time when “Russia was receiving upwards of $100 a barrel by virtue of high global energy prices".

“We do not expect you to formally join the price cap coalition unless that’s something you see in your interest as doing”, Michael Pyle. (PTI Photo)
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Energy tops the priority list on global trade and the recent price cap on Russian oil will help countries like India to lower their costs, regardless of whether India joins the coalition or not on a formal basis, and at the same time also limit the resources that Russia has to fund this war, US Sherpa and Deputy National Security Adviser Michael Pyle said. In an interview with Aanchal Magazine, Pyle justified the high price cap level of $60 saying that the discussions over the price cap level started at a time when “Russia was receiving upwards of $100 a barrel by virtue of high global energy prices”. Edited excerpts:

Q: India in its opening remarks at the G20 Sherpa track mentioned about Global South is unheard. That’s the positioning India is taking and there is emphasis on views of emerging economies. How are the developed economies looking at it?

A: I would say a couple of things. If you roll the clock back a month, just ahead of the G20 Summit in Bali, President Biden… one, he wanted to rally the world to condemn Russia’s war and the impact that Russia’s war was happening on the global economy including around energy, secure security, food security, much else besides. Secondly, he wanted to present an affirmative agenda of steps that we could take together that would address those stresses on the global economy, again, around energy and food. That would, in particular, answer the needs of the emerging world. That’s the agenda that he came to Bali with. Taking steps around energy, food, debt, the reform of the World Bank and the other multilateral development banks. That’s a policy agenda that’s really focused on answering the needs of the emerging world. And that agenda remains our core focus now that India has taken on the presidency of the G20. And we see lots of areas of overlap between what we’re focused on, and what the Indian team is focused on, in terms of their own priorities. So we’re very excited about this coming year, and what we can do together with India through the G20 that answers the needs of the emerging world.

Q: The role of multilateral institutions is also getting increasingly questioned. And also, at a time when we are in the middle of geopolitical and economic crises globally, the synchronized central bank action is also being questioned with a view that developing countries like India should not be at the same pace like the policy actions of the US Fed. How do you see that?

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A: First, I would say it’s not appropriate for me, coming from the White House, to comment on our central bank policy. But what I can say is what we are very focused on this being a moment of significant headwinds for the global economy, around pressures on energy prices, around pressures on food prices, around a number of countries that are facing debt distress, around the need for multilateral institutions to have a gameplan and the resources, they need to take on important global challenges like climate, public health. That is an agenda that really speaks to, that kind of presses on the moment, but also speaks more bilaterally, what we can do both now and over the coming years to address those immediately, but also, the long term need to fight climate change to deliver on public health…we’re very focused multilaterally on having an agenda that does those things.

Q: You mentioned bilateral relations including on climate change, but what are the focus areas on the trade? Did you raise them in the G20 discussion?

A: On trade, I might actually zero in on energy. That is an incredible challenge right now. Many countries around the world are facing high prices for energy that impact households and businesses. One of the things and today’s an important day, in this regard — the price cap on Russian oil has gone into effect. And that is precisely targeted at doing two things, one, preserving the supply of oil and energy in global markets, in particular, so that developing economies can access oil and have a tool to pay less for that oil, and relieve some of the pressure on their households and businesses, while at the same time limiting the amount of revenue that Russia receives to funds its war effort. So to us it’s important to mention global trade right now, energy is at the top of that list, precisely because of the pressures that so many around the world are facing on energy prices. We think the steps that we’ve taken on the price cap on Russian oil help to relieve those burdens, preserve supply, lower costs, give countries around the world like India tools to lower the costs, they’re paying for energy, while at the same time also limiting the resources that Russia has to fund this war.

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Q: Why did it take so long to arrive at the consensus for the oil price cap because the first round of discussions began in May. And how effective do you think it would be if India and China continue to buy Russian oil?

A: I’d say a couple things. One, yes, we began work on this back in May and June, G7 leaders spoke to the importance of pursuing a price cap. The plan had always been that the target date for implementing the price cap was going to be early December, to coincide with the moment when the EU embargoed Russian oil and limited the supply of its services, the transport of Russian oil to other parts of the world. One of the things that we’ve said consistently to India and other partners is we do not expect you to formally join the price cap coalition unless that’s something you see in your interest as doing. But regardless of whether you join the coalition or not formally, the price cap will give you a tool to reduce the price that you pay for energy. And in that sense, our interests are aligned… American consumers, American businesses, they want to pay less for energy. Indian households and businesses want to pay less for energy. This is a common thing that both the US economy, the US government and the Indian economy and the Indian government share in their interests. And we have articulated all along that whether the important thing about the price gap is the tool for India to pay less for energy. And, in so doing, help relieve some of the pressure on its households and businesses from higher energy costs. And also in so doing, reduce the revenue that Russia is receiving to fund its war effort. So we very much see this as a place where our interests are aligned.

Q: But the quantity of oil imports of India have increased from Russia, and they seem to be replacing the US share rather than from the other countries like Saudi. So is there a strategy? Has there been a discussion on that?

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A: Again, I think that the important thing for us is that we preserve overall global energy supply, and that we reduce the cost of that energy for global consumers, including India. In our judgment, the price cap is a way of achieving both of those things: keeping supply on global markets, while giving India and other consuming countries a tool to lower the price that they pay for their energy. And in so doing, they can also limit the amount of revenue that Russia receives to fund the war. And those are the important things.

Q: When you mention Russian revenues getting impacted, do you think the price cap has been pegged much higher at $60 than $30 which Ukraine was seeking or even NATO members such as Poland were seeking? So at this price cap, do you think that Russian revenues will get impacted?

A: I would just say when we talked about implementing a price cap, over the summer for G7 leaders, Russia was receiving upwards of $100 a barrel at that time by virtue of high global energy prices. Since that time, in part, because of an expectation for price that would be implemented, we’ve seen global oil prices come way down. That has reduced the pressure that households and businesses around the world including India have faced, which will also reduce the amount of revenue that Russia has to fund this war. That in our eyes is a success. And we expect that the price cap is going to continue to be effective across each of those dimensions.

Q: The economic crises of high debt levels, inflation and slowdown are being cited as a concern. How did you raise it in the current meeting and how do you plan to raise it in the upcoming meetings?

A: The issues of debt restructuring for low and middle-income countries are a key priority for the United States. We also think it’s a key priority that we share with India. This is a moment of significant global economic headwinds. We see a number of countries out there, like Zambia, Sri Lanka, seeing significant debt distress, and helping those countries get to a place where they can get out from under their debt burden and grow and provide for their people, again, is a priority that is of utmost importance for the United States. We are very hopeful that the 19 members of the G20 agree that this is a key priority, and agree that we need to take steps to address this crisis. India has obviously been one of those 19. And it articulated a strong message around the priority they’re going to place on this during their G20 year. We look forward to working constructively in the spirit of partnership with India to help advance that and to really achieve ultimately, consensus among all 20 members of the G20 to really take action against this issue this year.

First published on: 07-12-2022 at 04:35 IST
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