Europe Bans Russian Diesel, Other Oil Products Over Ukraine War

Europe imposed a ban on Russian diesel fuel and other refined oil products on Sunday, reducing Moscow's energy dependence and attempting to further crimp the Kremlin's fossil fuel earnings.

The ban is accompanied by a price cap agreed upon by the Group of Seven allied democracies.

The aim is to keep Russian diesel flowing to countries like China and India while avoiding a sudden price increase that would harm consumers around the world and reduce profits funding Moscow's budget and war.

Diesel is important to the economy because it powers cars, trucks transporting goods, farm equipment and factory machinery.

Diesel prices have risen as a result of recovering demand following the Covid-19 pandemic and limited refining capacity, contributing to global inflation.

The new sanctions raise price uncertainty as the 27-nation European Union seeks new supplies of diesel from the United States, the Middle East and India to replace those from Russia, which once supplied 10 per cent of Europe's total diesel needs.

Prices may also rise as China's economy recovers following the repeal of the draconian Covid-19 restrictions.

The USD 100 per barrel price cap for diesel, jet fuel, and gasoline will be enforced by prohibiting insurance and shipping companies from handling diesel priced above the limit. The majority of these businesses are based in Western countries.

Once we have these price caps in place, we can squeeze the Russian price and deny them, deny (President Vladimir) Putin money for his war without causing a price spike that will harm Western and developing economies, said Thomas O'Donnell, a global fellow at the Wilson Center in Washington.

The diesel price cap will not take effect immediately because it was set at roughly the price of Russian diesel. The main issue for Russia now will be finding new customers, not evading the price ceiling.

The cap, on the other hand, is intended to prevent Russian gains from sudden price increases in refined oil products.

According to the European Union's executive commission's weekly oil market report, diesel fuel has been flat since the beginning of December, costing 1.80 euros per litre (USD 7.37 per gallon) as of 30 January.

In Germany, the EU's largest economy, pump prices fell 2.6 cents to 1.83 euros per litre (USD 7.48 per gallon) on 31 January.

The ban allows for a 55-day grace period for diesel loaded on tankers before Sunday, with the goal of avoiding market disruption.

Importers have had time to adjust, according to European Union officials, since the ban was announced in June.

Russia earned over USD 2 billion in diesel sales to Europe in December alone, as importers appear to have stocked up ahead of the ban.

Europe has already banned Russian coal and most crude oil, while Moscow has suspended most natural gas shipments.