FRANKFURT (GERMANY): Europe imposed a ban on Russians on Sunday diesel fuel and other refined petroleum products, significantly reducing energy dependence on Moscow and seeking to further tighten the Kremlinfossil fuel revenues as punishment for invading Ukraine.
The ban comes with a price cap agreed by the allied democracies of the Group of Seven. The aim is to allow Russian diesel to continue to flow to countries like China and India and avoid a sudden rise in prices that would hurt consumers around the world, while cutting profits financing Moscow’s budget and war.
Diesel is essential for the economy as it is used to power cars, trucks transporting goods, agricultural equipment and factory machinery. Diesel prices have been high due to the recovery in demand from the COVID-19 pandemic and refining capacity limits, contributing to inflation of other commodities around the world.
The new sanctions create price uncertainty as the 27-nation European Union finds new diesel supplies from the United States, the Middle East and India to replace those from Russia, which at some point supplied 10% of Europe’s total diesel needs. These are longer journeys than from Russian ports, stretching available tankers.
Prices could also be pulled higher by reviving demand from China as the economy rebounds from the end of draconian COVID-19 restrictions.
The $100 per barrel price cap for diesel, jet fuel and gasoline is to be enforced by prohibiting insurance and shipping services from handling diesel whose price exceeds the limit. Most of these companies are located in western countries.
This follows a $60-a-barrel cap on Russian crude that went into effect in December and is meant to work the same way. Diesel and oil caps could be tightened later.
“Once we set these price caps, we can squeeze the Russian price and deny them, deny (the president vladimir) Cheese fries money for its war without a price spike that will harm Western and developing economies,” said Thomas O’Donnell, a global fellow at the Washington-based company. Wilson Center.
The diesel price cap will not bite immediately as it has been set roughly at what Russian diesel is trading. Russia’s main problem now will be finding new customers, not getting around the price cap. However, the cap is intended to prevent Russian gains from any sudden price spikes in refined petroleum products.
Analysts say there could be a price upside initially as markets settle the changes. But they say the embargo should not cause a price spike if the cap works as intended and Russian diesel continues to flow to other countries.
Diesel fuel at the pump has been stable since early December, costing 1.80 euros per liter ($7.37 per gallon) as of January 30, according to the weekly oil market report published by the European Union’s executive board. Pump prices in Germany, the EU’s biggest economy, fell 2.6 cents to 1.83 euros per liter ($7.48 per gallon) as of January 31.
The ban provides a 55-day grace period for diesel loaded onto tankers before Sunday, a step aimed at avoiding disruption to markets. European Union officials say importers have had time to adjust since the ban was announced in June.
Russia earned more than $2 billion from diesel sales in Europe in December alone, as importers appeared to have stocked up on additional purchases ahead of the ban.
Europe has already banned Russian coal and most crude oil, while Moscow has halted most natural gas shipments.
The ban comes with a price cap agreed by the allied democracies of the Group of Seven. The aim is to allow Russian diesel to continue to flow to countries like China and India and avoid a sudden rise in prices that would hurt consumers around the world, while cutting profits financing Moscow’s budget and war.
Diesel is essential for the economy as it is used to power cars, trucks transporting goods, agricultural equipment and factory machinery. Diesel prices have been high due to the recovery in demand from the COVID-19 pandemic and refining capacity limits, contributing to inflation of other commodities around the world.
The new sanctions create price uncertainty as the 27-nation European Union finds new diesel supplies from the United States, the Middle East and India to replace those from Russia, which at some point supplied 10% of Europe’s total diesel needs. These are longer journeys than from Russian ports, stretching available tankers.
Prices could also be pulled higher by reviving demand from China as the economy rebounds from the end of draconian COVID-19 restrictions.
The $100 per barrel price cap for diesel, jet fuel and gasoline is to be enforced by prohibiting insurance and shipping services from handling diesel whose price exceeds the limit. Most of these companies are located in western countries.
This follows a $60-a-barrel cap on Russian crude that went into effect in December and is meant to work the same way. Diesel and oil caps could be tightened later.
“Once we set these price caps, we can squeeze the Russian price and deny them, deny (the president vladimir) Cheese fries money for its war without a price spike that will harm Western and developing economies,” said Thomas O’Donnell, a global fellow at the Washington-based company. Wilson Center.
The diesel price cap will not bite immediately as it has been set roughly at what Russian diesel is trading. Russia’s main problem now will be finding new customers, not getting around the price cap. However, the cap is intended to prevent Russian gains from any sudden price spikes in refined petroleum products.
Analysts say there could be a price upside initially as markets settle the changes. But they say the embargo should not cause a price spike if the cap works as intended and Russian diesel continues to flow to other countries.
Diesel fuel at the pump has been stable since early December, costing 1.80 euros per liter ($7.37 per gallon) as of January 30, according to the weekly oil market report published by the European Union’s executive board. Pump prices in Germany, the EU’s biggest economy, fell 2.6 cents to 1.83 euros per liter ($7.48 per gallon) as of January 31.
The ban provides a 55-day grace period for diesel loaded onto tankers before Sunday, a step aimed at avoiding disruption to markets. European Union officials say importers have had time to adjust since the ban was announced in June.
Russia earned more than $2 billion from diesel sales in Europe in December alone, as importers appeared to have stocked up on additional purchases ahead of the ban.
Europe has already banned Russian coal and most crude oil, while Moscow has halted most natural gas shipments.
