The Russia’s indefinite diesel ban, which came into immediate effect and applies to all countries apart from four former Soviet states, does not have an end date.
Russia put an indefinite halt on the export of diesel and gasoline to the majority of nations, which runs the risk of interrupting fuel supplies just as winter sets in and might worsen existing shortages worldwide. The Kremlin announced Thursday that it would impose “temporary” limitations on diesel exports in order to stabilize fuel prices on the local market. The decree was signed by Prime Minister Mikhail Mishustin.
Except for four former Soviet governments, all nations are subject to the immediate-effect prohibition, which has no expiration date. Belarus, Kazakhstan, Armenia, and Kyrgyzstan—all members of the by Moscow-led Eurasian Economic Union—are among the nations excluded from the embargo. Russia is a significant crude oil exporter and one of the biggest providers of diesel in the world. The possible effects of Russia’s embargo worry market participants, especially at a time when global diesel supplies are already at low levels. On Thursday, the announcement caused a $1 increase in the price of a barrel of oil, which later declined for the day.
On Friday afternoon in London, benchmark Brent crude futures traded 0.9% higher at $94.13 a barrel, while West Texas Intermediate futures increased 1.1% to trade at $90.62.
Energy specialists worried that Moscow could once again be attempting to weaponize gasoline supplies ahead of another winter heating season due to the ambiguous language used in Russia’s announcement, making it difficult to determine exactly how long the embargo would be in effect.
According to Reuters, a Kremlin spokeswoman stated on Friday that the fuel export ban will continue for as long as was required to maintain market stability. Prior to the intervention on Thursday, analysts claimed that the weak currency, domestic refinery maintenance, and government-led initiatives to boost domestic supply had put pressure on Russian diesel exports.
The likelihood of an immediate halt in diesel and gasoline exports is unlikely; most likely, it would take 1-2 weeks for the impact to manifest, according to Viktor Katona, lead analyst at Kpler, in a research note released on Friday. “All deals agreed upon before the regulation took effect are still on,” he added.
However, he continued, “by that time, the government might already have repealed this particular piece of legislation, as abruptly as it was published.”
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What effects might the diesel ban have?
Before the Kremlin invaded Ukraine in full in February of last year, Russian refineries were thought to be exporting oil products at a rate of over 2.8 million barrels per day. According to ING, that amount has now decreased to about 1 million barrels per day, but Moscow is still a significant player in the world’s energy markets.
In a research note released on Friday, Warren Patterson, head of commodities strategy at ING, stated that Russia’s embargo on gasoline exports was a significant move ahead of the Northern Hemisphere winter, a time when demand would generally increase seasonally.
Saudi Arabia, the head of OPEC, announced on September 5 that it will continue its 1 million barrel per day production reduction through the end of the year, and non-OPEC leader Russia promised to cut back on oil exports by 300,000 barrels per day until then. Both nations have stated they will evaluate their voluntary cuts every month.
According to Callum Macpherson, head of commodities at Investec, “the ban appears to be intended to address tightness and high prices in domestic Russian markets, where high oil prices combined with a weak rouble, must be painful for Russian consumers.”
The fact that this restriction was announced the day after Russia had a difficult time at the UN may have been a coincidence, or it may have been a response to that policy shift toward utilizing energy as a weapon more broadly.
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