The move comes after the bloc found new diesel supplies from the United States, the Middle East and India to replace Russian energy supplies.
Europe has imposed a ban on Russian diesel fuel and other refined petroleum products, dramatically reducing energy dependence on Moscow and seeking to further cut the Kremlin’s fossil fuel revenues as punishment for invading. Ukraine.
Sunday’s ban comes with a price cap agreed by allied Group of Seven (G7) nations – the US, Britain, Germany, France, Italy, Japan and Canada.
The aim is to allow Russian diesel to continue to flow to countries like China and India and avoid a sudden price hike that would hurt consumers around the world while reducing profits funding the budget and the Moscow war.
Diesel is essential for the economy as it is used to power cars, trucks transporting goods, agricultural equipment and factory machinery. Diesel prices rose due to the recovery in demand after 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.
Neil Atkinson, a former International Energy Agency analyst, told Al Jazeera that EU sanctions on Russian products were unlikely to have a big impact on prices, at least initially. .
Indeed, businesses around the world stockpiled Russian products ahead of the well-heralded ban, Atkinson said.
“It is possible that if demand growth is very strong in Asian economies … we could find that lack of investment in parts of the oil industry infrastructure could lead to shortages and price spikes” , did he declare.
G7 Price Cap
The G7 price cap of $100 per barrel for diesel, jet fuel and gasoline must 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.
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 EU executive commission. 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 that aims to prevent markets from shaking. EU 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.