Coming out with fresh sanctions against Russia over Ukraine war, the European Union has now imposed a ban on Russian diesel fuel and other refined oil products, curtailing energy dependency on Moscow.
The ban comes along with a price cap agreed by the Group of Seven (G7) allied countries – the United States, Britain, Germany, France, Italy, Japan and Canada. The new sanctions may well lead to uncertainty over prices as the 27-nation European Union will now explore new avenues for diesel supply from the US, Middle East and India to replace those from Russia, which at one point catered to 10 per cent of Europe’s total diesel needs. The sanctions are aimed at reducing the profits funding Moscow’s budget and war.
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The G7 price cap of $100 per barrel for diesel, jet fuel and petrol is to be enforced after barring insurance and shipping services from handling diesel priced over the limit. It follows a $60-per-barrel cap on Russian crude that came into effect in December and is supposed to work the same way. Both the diesel and oil caps could be tightened subsequently.
The diesel price cap will not bite immediately because it was set at about what Russian diesel trades for. Russia’s chief problem now will be finding new customers, not evading the price ceiling. However, the cap aims to prevent Russian gains from any sudden price spikes in refined oil products.
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Analysts say there might be a price bump initially as markets sort out the changes. But they say the embargo should not cause a price spike if the cap works as intended and Russian diesel keeps flowing to other countries.
The ban provides for a 55-day grace period for diesel loaded on tankers before Sunday, a step that aims to prevent ruffling markets. EU officials say importers have had time to adjust since the ban was announced in June.
Russia earned more than $2bn from diesel sales to Europe in December alone as importers appear to have stocked up with added purchases ahead of the ban.
Europe has already banned Russian coal and most crude oil, while Moscow has cut off most shipments of natural gas.