The move comes after the bloc found new supplies of diesel from the US, the Middle East and India to replace Russia’s energy supplies.
Europe has imposed a ban on Russian diesel fuel and other refined petroleum products, reducing energy dependence on Moscow and seeking to further reduce the Kremlin’s fossil fuel earnings as punishment for its invasion of Ukraine.
Sunday’s ban comes alongside price caps agreed by the Group of Seven (G7) allied nations – the United States, Britain, Germany, France, Italy, Japan and Canada.
The aim is to allow Russian diesel to continue flowing to countries such as China and India and avoid price spikes that would hurt consumers around the world while cutting into profits that fund Moscow’s budget and war.
Diesel is crucial to the economy as it is used to power cars, trucks that transport goods, agricultural equipment and factory machinery. Diesel prices have been boosted by a recovery in demand following the COVID-19 pandemic and refining capacity constraints, which has contributed to inflation for other commodities worldwide.
The new sanctions are creating price uncertainty as the 27-member European Union finds new supplies of diesel from the US, the Middle East and India to replace those from Russia, which at one point supplied 10 percent of Europe’s total diesel needs. These are longer journeys than from Russian ports, stretching the available tankers.
Neil Atkinson, a former analyst at the International Energy Agency, told Al Jazeera that EU sanctions on Russian products are unlikely to have a major impact on prices, at least initially.
That’s because companies around the world stockpiled Russian products before the well-publicized ban, Atkinson said.
“There is a possibility that if demand growth is very strong in Asian economies … we could find that a lack of investment in parts of the oil industry infrastructure could lead to shortages and spikes in prices,” he said.
G7 price cap
The G7 price cap of $100 per barrel for diesel, jet fuel and gasoline is to be enforced by prohibiting insurance and shipping services from handling diesel priced above the cap. Most of these companies are located in Western countries.
It follows the $60-a-barrel cap on Russian crude that took effect in December and should work in the same way. Both diesel and oil plugs can be tightened later.
The diesel price cap won’t bite right away because it’s set at roughly what Russian diesel sells for. Russia’s main problem now will be finding new customers, not avoiding the price ceiling. However, the restriction is intended to prevent Russian gains from sudden spikes in the price of refined petroleum products.
Analysts say there could be a jump in prices initially as markets sort out the changes. But they say the embargo should not cause prices to spike if the cap works as intended and Russian diesel continues to flow to other countries.
Diesel fuel at the pumps has been unchanged since early December, costing 1.80 euros per liter ($7.37 per gallon) as of January 30, according to the weekly oil market report issued by the EU Executive Commission. Pump prices in Germany, the EU’s largest economy, fell 2.6 cents to 1.83 euros per liter ($7.48 per gallon) as of Jan. 31.
The ban provides for a 55-day grace period for diesel fuel loaded onto tankers before Sunday, a step intended to prevent market disruption. 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 stocked with extra purchases ahead of the ban.
Europe has already banned Russian coal and most crude oil, while Moscow has cut off most natural gas supplies.