The oil embargo against Russia was decided months ago, now things are getting serious: from today, no more refined products such as diesel and petrol may be imported into the EU. Is refueling more expensive now? And do the sanctions affect Russia at all?
Almost a year after the Russian invasion of Ukraine, further EU sanctions against Moscow take effect. Since the beginning of December, no Russian crude oil has been allowed to be imported into the EU by tanker, and since the beginning of January Germany has stopped importing it via the Druzhba pipeline. As of today, the EU no longer wants to buy any refinery products such as diesel, petrol or lubricants from Russia. In addition, a regulation is effective immediately that is intended to force Russia to sell oil products below the market price to buyers in other countries. The measures are intended to make it more difficult for President Vladimir Putin to finance his war of aggression. But consequences for Germany are also to be expected.
“The general security of supply and the security of the supply of fuel is guaranteed,” assures a spokesman for Economics Minister Robert Habeck. The mineral oil association Fuels and Energy also sees no supply gap. It’s all about diesel. According to the industry association, Germany covered around 12.5 percent of its consumption from Russia in 2022 – despite the Ukraine war. Replacements come from the USA, Western Europe and the Arab region, reports Fuels and Energy. Petrol is not imported from Russia. There is a 90-day fuel reserve for emergencies.
That’s not out of the question. The Düsseldorf energy expert Jens Südekum says: “I don’t think we will see dramatic price jumps.” The embargo level that is now effective had been announced for a long time. “In the past few weeks and months we have seen veritable panic buying at the important ports of Rotterdam, Antwerp and Amsterdam,” reports the economist. “That means that before the embargo they managed to get what was still possible. The diesel warehouses are full to the hilt. That will limit price increases.”
However, Thomas Puls from the German Economic Institute points out that diesel is scarce on the world market. If the EU no longer buys from Russia, the fuel will have to come from more distant areas, such as Saudi Arabia. The capacity of the special ships is limited, the distances are longer and the transports are therefore more expensive.
In October 2022, according to the latest figures from the EU statistics office Eurostat, Russia exported oil products such as diesel worth more than 2.3 billion euros to the EU. At that time, products worth around 558 million euros went to Germany alone. Russian energy expert Alexej Belogoriev doubts that the EU can simply replace this supplier. So far, Russia has delivered 600,000 barrels a day to diesel alone; the USA, Saudi Arabia and India together would have 200,000 barrels. Nevertheless, experts expect that the sanctions will reduce Russian production of petroleum products – by 15 percent to around 230 million tons this year. A barrel equals 159 liters.
With the new price cap now in force for Russian petroleum products. This means that, together with partners like the USA, it wants to force Russia to sell these substances to third countries below the market price. It’s supposed to work like this: Important services for Russian exports – such as transport by Western shipping companies or insurance companies – should only be allowed if the price of the exported goods stays within the set upper limit. The EU’s goal: The combination of an import ban and a price cap should “significantly reduce” Russia’s income and at the same time stabilize global prices.
A price cap of initially USD 100 per barrel was agreed for high-quality oil products such as diesel. That’s the equivalent of around 92 euros at the moment. For comparison: on international exchanges, a barrel of diesel for delivery to Europe was last traded at prices equivalent to around 100 to 120 euros. For lower quality products, petroleum products such as heating oil, an upper price limit of initially 45 dollars (around 41 euros) per barrel should apply.
Nobody in Russia admits to sanctions pain. Rather, the leadership in Moscow emphasizes that the oil on the world market is mixing anyway and that they are finding other sales channels – in India, for example. However, Russia has to grant large price reductions, according to Südekum’s information, about 30 percent compared to western types of oil.
According to Deputy Prime Minister Alexander Nowak, Russia’s revenues from the sale of gas and oil will have risen by almost a third in 2022. Oil exports increased by 7 percent. However, the EU embargo on crude oil on tankers only came into effect on December 5th. There is no embargo on gas, but Russia itself has throttled exports to the EU. With a view to future income, Nowak admits to uncertainties. At the same time, Russia is hoping for billions in fees if, instead of transporting its own oil, it will channel the black gold from the ex-Soviet republic of Kazakhstan through the Russian Druzhba pipeline to Germany.
According to research by The Economist, Russia has found ways to circumvent the oil embargo. Accordingly, a gray market is developing with its own shipping and insurance capacities, partly based on guarantees from the Russian state. Putin defended himself against the international price cap for crude oil by ordering him to stop delivering to countries that comply with it from February 1st. Economist Südekum sees new loopholes in the new level of embargo: “One main effect of the embargo will be that Russian diesel will no longer reach the EU directly, but will do so indirectly. Russia supplies nations like India and Saudi Arabia, who buy cheap oil, in their refineries and then sell us the diesel.” That is not the point of the embargo.
But even if it were possible to prevent this circumvention, “then the question of diesel prices in Europe would certainly be more critical.” In other words, these imports prevent even greater shortages in the EU.