Sanctions: No more diesel from Russia: What the EU boycott means

Almost a year after the Russian attack on Ukraine, further EU sanctions against Moscow come into effect on February 5th.

Sanctions: No more diesel from Russia: What the EU boycott means

Almost a year after the Russian attack on Ukraine, further EU sanctions against Moscow come into effect on February 5th. Since the beginning of December, no Russian crude oil has been allowed to be imported by tanker, and since the beginning of January Germany has also stopped importing it via the Druzhba pipeline. From Sunday, the EU no longer wants to buy any more refinery products such as diesel, petrol or lubricants from Russia. This should make it more difficult for President Vladimir Putin to finance his war of aggression. But consequences for Germany are also to be expected.

Are diesel and Co. now scarce?

"The general security of supply and the security of the supply of fuel is guaranteed," assures a spokesman for Economics Minister Robert Habeck (Greens). 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.

Is diesel getting more expensive at the pump?

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 next embargo level 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.

Why are diesel prices higher in East Germany?

Two effects come together when it comes to supplying East Germany: the new embargo level and the fact that the refineries in Schwedt and Leuna are not working at full capacity. That's because they've long sourced Russian crude from the Druzhba pipeline and have needed new sources since Germany's import ban in early January. The PCK refinery in Schwedt was only 55 percent utilized - even if additional deliveries are expected soon.

The lower production of the two east German refineries is noticeable regionally, explains Fuels and Energy. The gas station price in the east is therefore around 2.5 cents for petrol and around 1 cent for diesel per liter higher than the national average.

Petroleum products imported from Russia

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 the 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.

How should price increases be prevented?

As with the import ban on crude oil, the EU wants to implement a price cap for Russian petroleum products together with the new import restrictions. In other words, she wants to force Russia, together with partners like the USA, 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 possible with impunity 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. From the point of view of Habeck's ministry, this recipe has worked so far: "The global oil price is stable, and the prices achieved for Russian crude oil and thus the Russian state revenues have fallen."

Does the embargo really hurt Russia?

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.

Nowak admits uncertainties regarding future income. At the same time, Russia is hoping for billions in fees if, instead of its own oil, it will in future channel the black gold from the ex-Soviet Republic of Kazakhstan through the Russian Druzhba to Germany.

Is the EU embargo complied with?

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. With a view to the new level of embargo, economist Südekum also sees loopholes: "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, which sell cheap oil buy it, process it in their refineries, and then sell us the diesel." That is certainly not the point of the embargo. But even if it were possible to stop these circumvention strategies, "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.