FRANKFURT, Germany—Europe on Sunday will ban Russian diesel and other refined petroleum products in a bid to reduce its energy dependence on Moscow and further squeeze the Kremlin’s fossil fuel revenues as punishment for its invasion of Ukraine.
The ban follows a price cap agreed upon by G7 allied democracies. The goal is to allow Russian diesel to continue to flow to countries such as China and India, avoiding sudden price increases that would harm consumers around the world, while profiting to fund Moscow’s budget and war. is to reduce
Diesel is key to the economy as it powers automobiles, goods trucks, farm equipment and factory machinery. Diesel prices are rising due to recovery in demand and restrictions on refining capacity after the COVID-19 pandemic, contributing to inflation in other commodities around the world.
The new sanctions will see the European Union of 27 countries discover new supplies of diesel from the US, the Middle East and India, replacing diesel supplies from Russia, supplying 10% of Europe’s total diesel demand at some point. These are longer journeys than from Russian ports and stretch available tankers.
Rebounding demand from China could also push prices higher as the economy recovers after the end of stringent COVID-19 restrictions.
The $100 per barrel price cap for diesel, jet fuel, and gasoline will be enforced by barring insurance and delivery services from handling diesel priced above the limit. Most of these companies are located in Western countries.
This follows the $60 per barrel cap on Russian crude that came into force in December and should work in the same way. Both the diesel and oil caps can be tightened afterwards.
The price cap for diesel is set at the trading price of diesel in Russia, so it will not apply immediately. Russia’s main problem right now is not getting around price caps, but finding new customers. However, the cap is intended to prevent Russia from gaining from sudden price spikes in refined petroleum products.
Analysts say prices may rise initially as the market sorts out changes. But they say that if the cap works as intended and Russian diesel continues to flow to other countries, the embargo shouldn’t cause prices to skyrocket.
Diesel fuel for pumps has been flat since the beginning of December, at €1.80 per liter ($7.37 per gallon) as of January 30, according to the weekly oil market report published by the European Union’s Executive Committee. It costs. Pump prices in Germany, the EU’s largest economy, fell 2.6 cents per liter to €1.83 ($7.48 per gallon) as of January 31st.
The ban provides a 55-day grace period for diesel onboard tankers by Sunday. This is a measure to avoid market turmoil. European Union officials say importers have had time to adjust since the ban was announced in June.
Russia made more than $2 billion from diesel sales to Europe in December alone as importers appear to be hoarding additional purchases ahead of the ban.
Europe has already banned Russian coal and most crude oil, while Moscow has suspended most shipments of natural gas.