Europe imposed sanctions on Russian diesel fuel and other refined oil products on Sunday, reducing energy dependence on Moscow and seeking to further reduce the Kremlin’s fossil fuel income as punishment for invading Ukraine.
The ban comes with a price cap agreed by the Group of Seven affiliated democracies. The goal is to allow Russian diesel to flow to countries such as China and India and avoid sudden price increases that would hurt consumers around the world, while shrinking Moscow’s budget and war profits.
Diesel is important to the economy because it is used to power cars, freight trucks, farm equipment, and factory machinery. Diesel prices have increased due to a recovery in demand following the COVID-19 pandemic and limits on refining capacity, contributing to inflation for other goods worldwide.
The new restrictions create uncertainty about prices as the 27-nation EU draws on new supplies of diesel from the US, the Middle East and India to replace Russia, which at one point delivered 10% of Europe’s total diesel needs. used to do. They are long journeys compared to Russia’s ports pulling available tankers.
Prices could also be boosted by reviving demand from China as the economy recovers after the end of harsh COVID-19 restrictions.
The $100 per barrel price cap for diesel, jet fuel and gasoline is to be enforced by preventing insurance and shipping services from handling diesel priced above the limit. Most of those companies are located in western countries.
It follows a $60-per-barrel cap on Russian crude that took effect in December and is supposed to work in the same way. Both the diesel and oil caps could be tightened laterally.
Thomas O’Donnell said, “Once we have these price caps set, we can squeeze Russian prices and negate them, costing (President Vladimir) Putin his war money.” can decline without growth, which will harm Western economies and developing economies.” A global partner with the Wilson Center in Washington.
The diesel price cap will not be cut immediately as it was set regarding the trade of Russian diesel. Russia’s main problem now will be to find new customers, not to avoid the price ceiling. However, the cap is intended to prevent Russians benefiting from any sudden price increases in refined oil products.
Analysts say there could be an initial jump in prices as the market settles to the changes. But they say the ban should not lead to a price hike if the cap works as intended and Russian diesel continues to flow to other countries.
Diesel fuel at the pump has been flat since early December, with the price at 1.80 euros per liter ($7.37 per gallon) as of January 30, according to the weekly oil market report released 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 grace period of 55 days for diesel loaded on tankers before Sunday, aimed at avoiding congested markets. 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 appear to have stocked up with additional purchases ahead of the ban.
Europe has already placed sanctions on Russian coal and most crude, while Moscow has cut off most shipments of natural gas.