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Europe bans Russian oil products, the latest strike on the Kremlin war chest

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Europe bans Russian oil products, the latest strike on the Kremlin war chest


Tires of a truck are pictured at a gas station in Frankfurt, Germany, Jan. 27. A European ban on imports of diesel fuel and other products made from crude oil in Russian refineries takes effect Feb. 5. The goal is to stop feeding Russia's war chest, but fuel costs have already jumped since the war started and they could rise again.

Tires of a truck are pictured at a gas station in Frankfurt, Germany, Jan. 27. A European ban on imports of diesel fuel and other products made from crude oil in Russian refineries takes effect Feb. 5. The goal is to stop feeding Russia’s war chest, but fuel costs have already jumped since the war started and they could rise again.

Michael Probst / AP

Global oil markets are bracing for more upheaval in the next couple of weeks after the European Union bans all Russian refined oil products in retaliation for the war in Ukraine. Starting Sunday, the 27-nation bloc will prohibit imports of Russian gasoline, diesel and other products used throughout Europe.

At the same time, the Group of Seven advanced countries, along with the EU and other allies will institute a global price cap on Russian refined oil products. That will bar access to ships, marine insurers and services unless the refined oil products are purchased for a price at or below an agreed limit. A similar system went into effect for Russian crude oil in December.

An agreement between the U.S., the G-7, the EU and Australia set the cap at $100 per barrel on premium oil products such as diesel and $45 per barrel on products like fuel oil, according to the U.S. Treasury Department.

Sales of oil and natural gas make up the lion’s share of Russia’s government budget. The United States, the EU and other allies are targeting Russian energy in a bid to tighten the economic noose around the Kremlin, making it harder to finance its war in Ukraine. But the measures could also lead to price spikes.

“The caps we have just set will now serve a critical role in our global coalition’s work to degrade Russia’s ability to prosecute its illegal war,” U.S. Treasury Secretary Janet Yellen said Friday. “Combined with our historic sanctions, we are forcing Putin to choose between funding his brutal war or propping up his struggling economy.”

It affects fuel for planes, cars, trucks and machinery

For the last couple of months, the EU has banned Russian crude oil imports but allowed the sale of refined products. The bloc will now join the United States and the United Kingdom in implementing a broader embargo.

The new EU ban will apply to anything produced from Russian crude oil, says Richard Bronze, head of geopolitics at Energy Aspects, a consultancy in London.

A pump nozzle at a gas station is labeled "Diesel B7" in Schleswig-Holstein, Germany. Much of Europe transportation runs on the fuel.

A pump nozzle at a gas station is labeled “Diesel B7” in Schleswig-Holstein, Germany. Much of Europe transportation runs on the fuel.

Axel Heimken / Picture Alliance via Getty Images

“Gasoline that goes into a car, the jet fuel that goes into a plane or diesel that goes into trucks, into operating machinery,” he says, “so it’s really the fuel that we actually consume and keeps the economy going.”

Last year, Europe imported about 700,000 barrels per day of Russian diesel — around half its total imports of the fuel, according to market analysts.

Europe has to look elsewhere, including to U.S. suppliers

Matteo Ilardo, a London-based geopolitical analyst with the risk intelligence firm RANE, says the ban will have an impact for Europeans. He points to France’s heavy reliance on Russian diesel.

“France usually imports around 20% of total seaborne diesel exports from Russia. So being able to phase out completely that much of diesel will be a challenge,” he says.

Europe has been gobbling up Russian diesel over the past few months ahead of the ban. Hedi Grati, the head of refining and marketing at S&P Global Commodity Insights, an energy research and data company in London, says Europe does have some refineries but not enough to meet the demand.

“The diesel will simply have to come from somewhere else,” he says. “The most logical suppliers are countries in the Middle East like Saudi Arabia, Kuwait, places like that, and then also India and the United States.”

And Russia seeks other buyers

Just as it did with the December ban on crude, Russia will have to find new places to sell its refined oil products.

“Those could be in East Africa, in Asia, they could be in Latin America,” Grati says. “What you’re looking at is one great big reshuffle to get desirable barrels to Europe, and then barrels deemed undesirable from Russia to those other markets.”

In a twist, the ban on Russian oil products could boost its sales of crude to China and India. Both are large refiners. It’s legal for them to import Russian crude, refine it and send it back to Europe, according to Bronze with the Energy Aspects consultancy.

“It is being viewed by some critics as a loophole or a weakness. But I think that is a deliberate part of the policy design,” Bronze says. The U.S. and its allies want to ensure that the products continue flowing to global markets to avoid price spikes.

It also reflects differences between the way international customs rules apply to crude oil versus refined products, he explains.

“Once it’s been through a refinery, for customs rules, the oil is viewed as transformed and … then its country of origin becomes wherever that refinery was located,” Bronze says.

Market reaction is predicted, but will it sway Moscow?

Oil is a global market, so the impact of the latest ban will likely be felt beyond Europe. Ilardo says there will undoubtedly be turmoil in the global oil markets initially.

“We’ll … have a price spike definitely in February right after the ban comes in place,” he says. “This will be simply a market reaction. Markets don’t like uncertainty, so they usually react with price spikes.”

That’s not good news for consumers or businesses in Europe, which is already struggling with a weakened economy.

The big question is whether this ban like the other will have any impact on Russian President Vladimir Putin in ending the war in Ukraine.

Bronze says undoubtedly the EU bans on crude and refined oil products will hurt Russia’s economy.

“But I think the difficult question is whether that economic pain is enough to change President Putin’s attitude towards the conflict in Ukraine or his wider policies towards the West,” he says. “And I think that’s much less likely to happen.”

Copyright 2023 NPR. To see more, visit https://www.npr.org.



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