Frankfurt, Germany.- Europe has imposed a ban on Russia’s diesel and other refined petroleum products, cutting Moscow’s energy dependency and trying to further cut the Kremlin’s fossil fuel revenue as punishment for invading Ukraine.
The ban is accompanied by a price cap agreed by the G-7. The aim is to allow Russian diesel to continue to flow to countries like China and India and prevent a sudden price hike that would hurt consumers around the world, while cutting profits that finance Moscow’s budget and war.
Diesel is key to the economy because it is used to power cars, trucks carrying goods, farm equipment and factory machinery. Diesel prices have been high due to the recovery in demand after the Covid-19 pandemic and limited refining capacity, which has contributed to inflation in other goods around the world.
New sanctions create price uncertainty as the 27-member European Union finds new supplies of diesel from the United States, the Middle East and India to replace those from Russia, which at one point met 10% of total needs diesel from Europe. These are longer voyages than those in Russian ports, which puts available tankers to the test.
The revival of Chinese demand, after the end of the draconian restrictions by the Covid-19, could also push prices up.
The limit of 100 dollars per barrel for diesel, aviation fuel and gasoline will be applied by prohibiting insurance companies and transport services from handling diesel whose price exceeds the limit. Most of these companies are located in Western countries.
This measure is in addition to the limit of 60 dollars a barrel imposed on Russian crude, which took effect in December and is supposed to work in the same way. Both limits, that of diesel and oil, could be tightened later.
