The timing of Russia’s move to prohibit diesel exports to the majority of nations could not have been worse for Europe. Russia’s petroleum supplies by sea were stopped earlier this year by the European Union as part of sanctions against Moscow for its full-scale invasion of Ukraine. To keep prices stable, however, the EU still needs a consistent supply of Russia diesel on international markets.
The restrictions, which also apply to petrol, were announced by the Russian government on Thursday and were said to be intended to stabilize domestic fuel prices. According to a Kremlin source quoted by Reuters on Friday, the limitations would last for whatever long the administration thinks them necessary.
Diesel powers the bulk of vans and trucks that transport commodities and raw materials across Europe, serving as the continent’s economic workhorse. Winter is coming, and in certain nations, it’s a crucial fuel for heating.
Moscow’s activities also pose a larger economic threat, namely a potential increase in inflation. Energy costs have already increased significantly in recent weeks as a result of Russia and Saudi Arabia’s commitment to continue limiting the supply of crude oil through the end of the year.
According to data provider Vortexa, Russia is the largest exporter of diesel in the world, making up over 13% of the supply globally so far this year.
Moscow has found new customers for its barrels in South America, the Middle East, and North Africa since the EU import restriction was implemented in January. Analysts caution that a reduction in supplies might increase competition for gasoline globally in the months to come, driving up costs everywhere, especially in Europe.
Less Competition, Higher Pricing
Following the disclosure of Russia’s export restrictions, wholesale prices for European diesel increased 5% on Thursday, closing at $1,020 per metric tonne, according to statistics from Rystad Energy. By Friday afternoon, prices had dropped back to roughly $990, which was still more than they had been before the revelation.
Senior vice-president of Rystad Energy Jorge León told CNN, “The timing is really, really bad.” In reference to its use in producing heating oil to warm homes, he added, “Seasonally there is a lot of demand for diesel in winter.”
The demand for diesel increases in the fourth quarter of the year due to increased activity in the construction, agriculture, and manufacturing sectors, he continued.
The Newest Energy Salvo From Russia?
According to some observers, the action could be the most recent instance of Moscow turning its energy exports into a weapon in retaliation for Western sanctions.
Director at Eurasia Group Henning Gloystein observes that the export restrictions came “almost exactly” before Europe’s warm season. Gloystein claims that despite evidence of gasoline shortages domestically, he finds it difficult “to believe that this is a coincidence or purely a domestic issue.”
As winter draws near, he told CNN, “It is no surprise that Russia is making another attempt to cause economic pain to the West.”
Gloystein predicts that the harm to Europe will be “much more limited” than what Moscow’s reductions in natural gas supplies last year caused.
However, rising diesel costs coincide with an increase in crude oil prices, stoking concerns that inflation in Europe and the US could spike once more just as it has begun to show major declines.
