Image of truck tires at a gas station in Frankfurt, Germany, January 27. A ban on the import of diesel fuel and other products made from European crude oil in Russian refineries takes effect from Feb 5. The goal is to stop fueling Russia with war chests, but fuel costs have skyrocketed since the war started and they could go up again.
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Michael Probst/AP
Image of truck tires at a gas station in Frankfurt, Germany, January 27. A ban on the import of diesel fuel and other products made from European crude oil in Russian refineries takes effect from Feb 5. The goal is to stop fueling Russia with war chests, but fuel costs have skyrocketed since the war started and they could go up again.
Michael Probst/AP
Global oil markets are bracing for greater volatility in the coming weeks after the European Union banned all refined Russian petroleum products in retaliation for the war in Ukraine. Starting Sunday, the 27-nation bloc will ban imports of Russian gasoline, diesel and other products used across Europe.
At the same time, the Group of Seven advanced nations and their allies will establish a global price ceiling for Russian refined oil products. That would prevent access to ships, marine insurers and services unless refined oil products are purchased at or below the agreed-upon price. limit. A similar system effective for Russian crude in December.
Price ceilings for refined products have yet to be established. Analysts say it is more likely that there will be one price set for diesel, another for products like gasoline.
Sell oil and natural gas make up the largest part of the Russian government budget. The United States, EU and other allies are targeting Russian energy in an effort to tighten the economic noose around the Kremlin, making it harder to finance the war in Ukraine. But the measures could also lead to price increases.
It affects the fuel for planes, cars, trucks and machines
For the past few months, the EU has banned the import of Russian crude oil but allowed the sale of refined products. Now block will join USA and UK in implementing a broader embargo.
Richard Bronze, head of geopolitics at Energy Aspects, a London-based consulting firm, said the new EU ban would apply to any product made from Russian crude.
A pump at a gas station labeled “Diesel B7” in Schleswig-Holstein, Germany. Most vehicles in Europe run on fuel.
Axel Heimken/Picture Alliance via Getty Images
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Axel Heimken/Picture Alliance via Getty Images
A pump at a gas station labeled “Diesel B7” in Schleswig-Holstein, Germany. Most vehicles in Europe run on fuel.
Axel Heimken/Picture Alliance via Getty Images
“Gasoline for cars, jet fuel for airplanes or diesel for trucks, to run machines, so it is really the fuel that we consume and sustain the economy,” he said. economy”.
Last year, Europe imported around 700,000 barrels of diesel oil per day from Russia – about half of Europe’s total fuel imports, according to market analysts.
Europe must look elsewhere, including US suppliers
Matteo Ilardo, a London-based geopolitical analyst with risk intelligence firm RANE, said the ban would have an impact on Europeans. He pointed to France’s heavy reliance on Russian diesel engines.
“France typically imports about 20 percent of all its diesel exports by sea from Russia. So being able to get rid of that diesel entirely would be a challenge,” he said.
Europe has been gobbling up Russian diesel in the past few months ahead of the ban. Hedi Grati, head of refining and marketing at S&P Global Commodity Insights, an energy research and data firm in London, said Europe has some refineries but not enough to meet demand. bridge.
“Diesel would simply have to come from somewhere else,” he said. “The most reasonable suppliers are countries in the Middle East like Saudi Arabia, Kuwait, places like that, then India and the United States.”
And Russia looking for other buyers
Like it did with the crude oil ban in December, Russia will have to find new places to sell its refined oil products.
“Those people could be in East Africa, in Asia, they could be in Latin America,” Grati said. “What you’re looking at is a great big overhaul to get the barrels of wanted oil to Europe, and then those barrels of oil that are considered undesirable from Russia to those other markets.”
Conversely, a ban on Russian oil products could boost the country’s crude oil sales to China and India. Both are major refiners. According to Bronze with consulting firm Energy Aspects, it is legal for them to import Russian crude, refine and send it back to Europe.
“Some critics are seeing it as a loophole or a weakness. But I think it’s an intentional part of policy design,” Bronze said. The United States and its allies want to ensure that products continue to enter global markets to avoid price increases.
He explained that it also reflects the difference between how international customs rules apply to crude oil versus refined products.
“Once it has passed through a refinery, according to customs rules, the oil is considered modified and … then its country of origin becomes wherever the refinery is located,” Bronze said. that oil filter.
The market reaction has been predicted, but will it affect Moscow?
Oil is a global market, so the impact of the latest ban will likely be felt outside of Europe. Initially, there is bound to be chaos in the global oil market, Ilardo said.
“We’re going… for sure there’s going to be a spike in prices in February as soon as the ban goes into effect,” he said. “This will simply be a market reaction. Markets don’t like uncertainty, so they usually respond with a price increase.”
That’s not good news for consumers or businesses in Europe, which is already struggling with a weakening economy.
The big question is whether this ban or the other will have any impact on Russian President Vladimir Putin in ending the war in Ukraine.
Dong said it was certain that the EU ban on crude and refined oil products would hurt the Russian economy.
“But I think the hard question is whether that economic pain will be enough to change President Putin’s attitude toward the conflict in Ukraine or his broader policies toward the West. ,” he said. “And I think that’s less likely to happen.”
