Europe, G7, Others, to impose cap on Russia’s Oil Exports

From February 5, the European Union, the G-7 and its allies will attempt to impose a cap on the price of Russia’s fuel exports — the latest punishment for its invasion of Ukraine.

That will coincide with an EU prohibition on almost all imports of Russian oil products.

Similar measures are already in place on the country’s crude shipments, but it is the cap and ban on refined fuels — and in particular diesel — that has some oil-market watchers concerned about the potential for price spikes.

This, an unprecedented chunk of the global diesel market, the workhorse fuel of the global economy, is just weeks away from being subject to aggressive sanctions.

Prior to its invasion of Ukraine, Russia was Europe’s largest external supplier of the fuel and the continent has continued to buy in big volumes right up to the cutoff.

As a result, the sanctions are likely to see a great rerouting of global diesel flows — aided by Russia’s new crude buyers sending fuel back to Europe.

However, in the short-term, there’s a risk of higher prices.

The European Union will have to replace about 600,000 barrels a day of diesel imports, and Russia will need to find new buyers for those supplies, store the fuel on ships, or cut production at its refineries.

Shipments into the EU from the US and India have already been on the rise as they produce more than they consume, allowing them to export their surfeit.

China is also expected to send more of the fuel into its nearby markets, indirectly pushing cargoes from other suppliers toward Europe.

Crude prices slid after sanctions on Russia appeared to reroute exports, rather than cut them.

Bloomberg/Hauwa Abu