A ban on imports of Russian oil products such as diesel and gasoline into the European Union came into effect on Sunday, February 5, amid warnings of a deepening global energy crisis.
The move is aimed at reducing Russia’s revenue from energy sales and its ability to fund its war on Ukraine.
In October 2022, Russia exported more than 2.3 billion euros ($2.5 billion) worth of petroleum products, such as diesel, to the EU, according to the latest figures released by Eurostat. Germany alone imported products worth around 558 million euros.
Russia supplies more than 720,000 barrels of diesel per day to Europe. Before the Russo-Ukraine war in February 2022, the figure was more than 1 million barrels.
sanctions program
The new ban was decided in June 2022 within the framework of the sixth set of sanctions imposed by the European Union on Russia for its war against Ukraine. Some EU countries are expected to receive temporary exemptions.
On Friday, February 3, EU member states, the G7 and Australia announced that they had reached an agreement on capping the price of Russian oil derivatives. The move is the latest in an international effort to target Moscow’s main export.
The agreement caps the price of more expensive oil derivatives such as diesel at $100 a barrel, and $45 for lower-quality products, according to officials.
In December 2022, the EU imposed an embargo on Russian crude oil arriving by sea and, with its G7 partners, set a cap of $60 a barrel on global exports.
warn
Saudi Energy Minister Prince Abdulaziz bin Salman has warned that the sanctions could lead to future energy shortages.
Sanctions, embargoes and a sharp drop in investment in traditional energy sectors will lead to a global supply crisis, the Saudi minister said at a conference in Riyadh on Saturday.
Prince Abdulaziz bin Salman reiterated that global energy markets need to trust the OPEC+ alliance.
“We are a responsible group of countries. We put all policy issues related to energy and oil markets in one (basket), (but) we do not engage in political issues,” he said.
In the last quarter of 2022, the alliance was sharply criticized by the US government. The U.S. government has accused the alliance of siding with Russia by cutting global oil supplies.
The “OPEC+” alliance, which includes members of the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia, agreed in 2022 to cut output targets by 2 million bpd from November to the end of 2023, or about half of global demand. 2% to support the market. Meanwhile, the OPEC+ committee, which met on Wednesday, February 1, also backed the decision.
New Russian caps on maximum prices for Western oil products will further limit Russian oil revenues while keeping global energy markets supplied, U.S. Treasury Secretary Janet Yellen said on Friday. The Kremlin, meanwhile, condemned the West’s move, saying it would exacerbate imbalances in international energy markets.
Russia is a major oil producer with an average daily output of 11 million barrels. At the same time, it is also a major oil exporter, with an average daily export volume of 5 million barrels under normal circumstances.
Estimates from international investment banks suggest oil prices will average between $100 and $110 a barrel in 2023 due to rising demand, especially from China, and damaged supplies from Russia.
expected
Ahmed Badr Al-Kouh, a Kuwaiti oil expert, said the decision to ban Russian products would have a negative impact on the world market for crude oil and petroleum products.
In an interview with Al Jazeera, he said he would not rule out that such a decision would push oil prices higher given the increased demand, especially from China.
Asked whether Russia would retaliate against the Western decision, Coeha said he did not think Moscow would stop exporting diesel and other derivatives, but would seek alternative markets for its products so that its revenues would not come under further pressure.
Coeha pointed out that the global economy now desperately needs to extract more oil and its derivatives after restarting the cycle. He also noted that any sanctions on oil major Russia would divert consumers to other producers, including the Gulf states.
He spoke of Russia’s expected losses. According to Sanad Agency, because the latter will have to find new buyers for the oil, or store it and bear the associated costs, even if it is ready to make a decision in advance.
Oil market analyst Karim Fawaz confirmed in a tweet that the sanctions would greatly affect Russia. “The idea that oil sanctions have no cost to Russia is pure fantasy. Even if export prices fall or not, running a sanctioned business of this size is unprecedented and costs more than people realize,” he said.
On the other hand, energy expert Nader Itayim commented that Russia may have handled it well, better than expected, but sanctions will still be painful.
What are Russia’s current solutions?
- With the Western embargo on Russian derivatives, especially diesel, in effect, energy markets are predicting price levels for oil derivatives.
- Experts expected Moscow to circumvent the ban when diesel prices stabilized at $113 a barrel over the weekend. But the price of Russian diesel is heavily discounted by about $90.
- Estimates also suggest Russian fuel exports will drop by 200,000 barrels per day following the new ban.
- According to experts, Russian fuel can still legally be sold over the cap to companies that do not use Western financial services.
- Some countries may buy Russian diesel and transship the fuel they produce or import to Europe.
- Russian crude is likely to be processed in countries such as India and shipped to European countries as non-Russian diesel.
