Here's how a Russian oil price cap could flop - and instead benefit China and India

• A price cap on Russian crude is set to begin December 5, with the aim of limiting Moscow's revenue while keeping supplies flowing.
• But it could a have minimal effect on its intended target and instead help China and India.

Experts say a price cap on Russian crude may only have a muted effect on Moscow, and instead serve to benefit China and India, two of its biggest buyers.

The price cap is set to begin on December 5 – the same day the European Union bans seaborne imports of Russian crude and European companies are barred from insuring Russian oil shipments. It's meant to keep Russian supplies on the market, preventing a price spike while decreasing export revenue amid its war on Ukraine.

But China, India, and other buyers in Asia won't feel obligated to commit to the price cap because it may not be any lower than what they currently pay, oil historian Gregory Brew told Insider. Russian Urals crude is already selling for roughly $25 below Brent prices, or about $60 per barrel.

The price cap is expected to be around $65 to $70 per barrel. There were some talks to set it near the price of production for Russian crude — about $20 a barrel — but they lost support, as that would likely trigger unilateral production cuts from Moscow that would drive prices higher, Brew explained.

"What it suggests is that [Russia's customers] are able to negotiate very favorable terms from Russian oil companies, who have to sell in order to maintain operations," he said. "Even if the price cap is not totally effective at driving down the price at which Russia can sell, it is likely that India, China, and other customers will be able to bid lower for Russian crude."

Some buyers in Asia have recently paused purchases of Russian oil to wait and see where the cap lands.

A policy dud for the West

A price cap may prove moot because Moscow has said for months it wouldn't trade with any nations that adhere to it, according to Livia Gallarati, a senior oil analyst at Energy Aspects. That could make it risky for Chinese and Indian customers to agree to the new parameters.

"We think the Russians will stick to their word on that because, in a way, agreeing to a price cap sets a precedent effectively for buyers deciding at which price they will buy commodities," Gallarati told Insider.

The only incentive for Asian buyers have to follow the cap is to maintain access to European shipping and insurance services. Next month's round of EU sanctions will ban those services on Russian oil cargoes, even for buyers outside of Europe, unless they commit to the price cap.

But there's no guarantee European shipping companies would even want to handle Russian oil, regardless of a price cap, she added.

Ultimately, the move is unlikely to have a major impact on oil markets, in her view. Nations that have signed up for the cap, Gallarati said, are the ones that already agreed to ban Russian oil imports.

"If [Russia] kept selling at the level at which they're selling today, then no countries actually need to officially sign up to the price cap because they're getting that discount anyway," she said.