Are Russia’s diesel sanctions leading to global disaster?

The life of energy markets is by no means a long calm river – especially in wartime and when it is led by one of the world’s largest suppliers of gas, oil and their products and derivatives.

Despite the enormous cost, estimated at €1,000 billion, and huge hardships for individuals as well as businesses and industries, Europe has survived what is predicted to be the worst winter ever. As for Vladimir Putin, who has made energy one of the main weapons of his war against Ukraine and its allies, he seems to have lost his bet.

But things will not stop here. On February 5, a new mass sanction against Moscow should enter into force.price limitApplied to Ural oil, this time it refers to diesel, one of its refined derivatives, on which the world, its homes, cars, and industry largely depend.

As Bloomberg explains, it is this importance of diesel in the daily lives of Europeans and their economies that worries experts. Until now, Russia has been the largest foreign supplier of diesel to the European Union (EU), at 600,000 barrels per day according to figures provided by Bloomberg, or 220 million barrels per year according to Time.

This is a huge amount that will have to be replaced one way or another, and its disappearance from the market could cause a huge tension in prices – in France, especially due to the end of the discount decided by the government, they are already rising at the pumps.

Bumps and pulls

Don’t panic, though: According to experts interviewed by Bloomberg, the global market should be able to absorb these shocks. “The loss of Russian barrels is huge and their replacement will be a big problem”Keshav Lohiya of Oilytics believes. “However, the market shows no signs of panic and trade flows have proven their resilience. There will be new routes for diesel.”

Europeans rushed to Russian diesel before the sanctions came into effect, simply to stockpile large stocks ahead of a possible price shock. However, a priori they will be able to rely on other suppliers: Middle Eastern countries, where diesel production exceeds domestic demand, India, the US or China, which are in the best position, will be happy to find other customers. .

On the other hand, a sign of the complexity created by sanctions against a nation in a globalized economy, some of Europe’s imported diesel may come from, for example, Russian oil imported by India, refined and sent back to Europe.

Diesel from China, whose exports are already on the rise, could supply neighboring Asian markets and free up the flow for Europe or the rest of the world. At least if it doesn’t change the lines: “It’s all about Chinese politicsWood Mackenzie Ltd. analyst Mark Williams, who gave an interview to Time, warns. The country has the key to all oil refining surpluses in the world.”

As the newspaper explains, Turkey can also play an important buffer role. Since it is not a member of the EU, it may decide to import Russian diesel in bulk and export its refined products to Europe. A silly game, but a potential solution to soften the blow. A global economy that is beginning to slow or even flirt with recession in some countries, such as the United States, risks reducing demand for diesel and thus reducing pressure on market prices.

But not everything is rosy everywhere. The market should accept the sanctions imposed on Russian diesel, but as with oil, it will probably take several months for things to normalize and for flows to reorganize.

If diesel comes from further afield or goes back and forth between Russia, its refiner and its end customers, prices should suffer. The return of colder temperatures could once again increase demand for heating oil in particular, complicating the situation somewhat.

France’s situation is also special. In the midst of pension reform, some unions have called for mass strikes in the coming weeks. They may affect oil refineries as early as October 2022. Therefore, periodic shortfalls cannot be ruled out if Russia has no role in these declines.

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