After curbing natural gas supplies to Europe last year, the Kremlin's been accused of weaponizing energy once more by banning exports of diesel as the winter season arrives. What will be the likely impact?
Russia last week announced a ban on exports of gasoline and diesel, as the Kremlin tries to tackle rising prices of the fuel at home and ensure enough domestic supply. The country in recent months has suffered shortages of gasoline and diesel.
The government decree said the restrictions would be temporary but did not give a date for them ending.
Several analysts said the ban would fuel price rises for diesel on world markets this winter. Russia is one of the world’s largest suppliers of diesel and a major exporter of crude oil.
Last year, the country exported 4.8 million tons of gasoline and almost 35 million tons of diesel.
What exactly has Russia banned?
The ban affects all kinds of diesel and took effect on September 21.
However, data from the London Stock Exchange Group shows that Moscow had already cut its seaborn diesel and gas oil exports by nearly 30% in the first 20 days of September, compared to the same period in the previous month.
Russia's energy minister said the measure would also prevent unauthorized "grey" exports of motor fuels.
The Kremlin said they needed the diesel market to reach saturation point before the ban would be lifted.
Former Soviet states that are members of the Moscow-led Eurasian Economic Union, including Belarus, Kazakhstan, Armenia and Kyrgyzstan, won't be affected by the ban.
Why has Moscow taken this action?
Russia has struggled with shortages of gasoline and diesel over the past few months.
Although retail prices are capped, wholesale fuel prices have spiked amid high inflation, worsened by the war and Western sanctions on the economy.
Russia is the world's largest grain producer and the shortage of fuel needed for agricultural machinery has left farmers in some regions unable to harvest, local media outlets have reported.
The weakness of the Russian ruble, as a result of Western sanctions over Russia's invasion of Ukraine has distorted the domestic fuel market, analysts say, because it incentivizes fuel exports to earn foreign currency.
Other factors for price rises include maintenance at oil refineries and transport bottlenecks.
A serious crisis could be awkward for the Kremlin as a presidential election looms in March.
What could be the impact in the Northern Hemisphere?
Market analysts are concerned that this could worsen global diesel inventories, which are already at low levels.
Some think that Moscow is tightening global supply just as governments and central banks around the world attempt to stop a rebound in inflation, which hit a multidecade high in many countries last year and has been falling again.
As news of the ban broke on Thursday, diesel prices in Europe jumped almost 5% to above $1,010 (€952) a ton.
Diesel is the lifeblood of the global economy and is used to power shipping, aviation and freight. Heating oil is a derivative of diesel and some analysts think prices could also rise sharply at a time of high demand this winter.
Last year, natural gas prices skyrocketed when Russia cut back supplies to Europe in retaliation for Western sanctions over the Ukraine war. As the conflict unfolded, Europe swiftly reduced its dependency on Russian gas — seeking supplies of liquefied natural gas (LNG) from the US, Norway and the Middle East.
But for several months ahead of the winter, there were fears of an energy crisis that would see power and heating blackouts during the coldest months of the year.
Is Russia really weaponizing energy again?
The vague language used by Moscow has some energy analysts concerned about how long the ban could last.
"Russia said last year the supply cuts in gas were only temporary, but continually tightened the noose," Henning Gloystein at Eurasia Group told the Financial Times (FT). "With winter approaching, targeting diesel could easily propel oil back above $100 a barrel, with all the uncomfortable ramifications that brings for the world economy."
Bloomberg News cited industry consultancy FGE as saying that the ban was unlikely to be prolonged as it "would force refinery shutdowns and have the exact effect Moscow is trying to counter — higher pump prices and domestic fuel shortages."
Bloomberg said the ban would likely last for six weeks, citing an analysis from Citigroup.
Helima Croft at RBC Capital Markets told the FT that "cutting exports pointed to a desire “to demonstrate the Kremlin’s willingness to weaponize oil supplies."
"Russia still wants to cause chaos, they still want to break the West’s resolve to support Ukraine. [Putin’s] goal seems to be to make it to next year and see the impact on the US presidential election."
Source: euronews
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