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Diesel embargo: What the import ban on Russian oil means for business and consumers


The second part of the EU embargo against the Russian oil industry comes into effect on Sunday: the import ban on petroleum products such as diesel and petrol. Experts are assuming greater upheavals on the oil markets than with the crude oil embargo.

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Expensive diesel: Due to the high demand for diesel, Germany is dependent on imports.

Russia has been the most important supplier so far, so price jumps cannot be ruled out

Photo: Michael Probst/AP

On Sunday the time has come: the second part of the oil embargo comes into force.

As a further sanction against Russia, the EU also wants to stop buying refined products from the country.

An embargo against Russian crude oil delivered by ship has been in effect since December 5th.

The now expanded import ban has the potential to tighten supply, reorganize global shipping routes and increase price volatility.

The oil markets are therefore preparing for turbulent times.

After all, Russia has so far been extremely important for the supply of diesel throughout Europe.

We have summarized what this means for the German economy and consumers.

The most important questions and answers at a glance:

How does the embargo work?

Just like the embargo on Russian crude oil that is already in place.

It bans EU states from importing Russian petroleum products such as petrol, diesel and kerosene.

As with crude oil, the embargo will also be linked to an international price cap.

This allows European insurers, ship owners and other service providers to enable the transport of Russian oil to third countries, provided that the price of Russian oil is below the price cap.

However, the EU and G7 countries have not yet agreed on the level of the price cap for oil products.

The aim is to keep the supply of oil from Russia stable on the world market in order to avoid price peaks.

On the other hand, the price cap is intended to limit the Kremlin's income from oil exports.

So far, the disruptions caused by the crude oil embargo have been limited.

Before the import ban, some analysts had expected noticeable price increases as a result of the changeover.

But the price of oil for the North Sea variety Brent has even fallen slightly in the meantime, and most recently it has been relatively stable at around 85 US dollars per barrel. Russia's export volumes have remained the same, according to the data analysis company Kpler.

Some experts reckon that the second stage of the embargo could have greater effects from Sunday.

Why could the embargo lead to major distortions?

The big difference in this embargo is the role of Asian buyers.

During the crude oil embargo, India and China jumped to the side of the Kremlin and bought up large quantities of crude oil after Europe, Russia's most important customer, disappeared.

When it comes to oil products, on the other hand, Russian President

Vladimir Putin

(70) can hardly hope for their support, experts expect.

The two states are themselves major producers and exporters of fuels.

This makes them less likely to be buyers, unless they ask for large discounts.

Russia could find new customers in West Africa or Latin America.

But analysts at the consulting firm Energy Aspects assume that Russia can only sell a good third of its previous diesel deliveries.

According to the Goldman Sachs Group, 15 percent of the world's diesel supplies come from Russia, of which 80 percent went to Europe until recently.

In this respect, according to the bank, the coming embargo will probably shake up the markets more than the import ban on crude oil.

What role has Russia played in Germany's fuel supply so far?

For decades, Russia was Germany's and also Europe's largest diesel supplier.

A good third of German diesel imports traditionally came from Russia.

Since Germany consumes more diesel than the domestic refineries produce, imports are necessary to cover the high demand from transport, the construction industry and agriculture.

In the case of petrol, on the other hand, more is exported because German production exceeds demand.

That is why the embargo is focusing in particular on the supply of diesel.

Experts estimate that Germany and Europe will in future be getting more of the necessary diesel imports from the Middle East, India and the USA.

Deliveries from India could be diesel processed from Russian crude.

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Photo: ADAC

Does this make diesel more expensive at the pumps?

This is difficult to predict and controversial among market observers.

Above all, the price development on the world markets is decisive.

What speaks for higher prices are the longer transport routes.

If the EU no longer buys in Russia but in more distant areas such as Saudi Arabia, transport will become more expensive.

In addition, diesel is scarce on the world market and, due to the rise in natural gas prices, many industrial companies are increasingly using heating oil for their plants, which is produced in the same refinery process as diesel.

This contributed to the fact that diesel prices have recently risen sharply.

One argument against higher prices is that the embargo has been known for a long time and the companies involved in the trade have been able to prepare accordingly.

For this reason, economist

Jens Südekum

(47) does not expect dramatic price increases, especially since the most important European transshipment point for oil - the ports of Rotterdam, Antwerp and Amsterdam (short: ARA) - was downright hoarding.

"The diesel stocks are full to the hilt. That will limit price increases."

So Germany still has a certain buffer – at least for the time being.

Will diesel prices in East Germany continue to rise as the region is particularly dependent on Russian oil?

That's possible. Despite an agreement between Poland and Germany to support each other in supplying oil, production at the east German refineries PCK and Leuna has been curtailed since the beginning of the year.

The PCK in Schwedt, Brandenburg, has been operating at a capacity utilization of only around 55 percent since it was no longer supplied with Russian crude oil via the Druzhba pipeline.

That is not enough to be able to supply eastern Germany and western Poland with petrol and diesel on a permanent basis.

Production could be increased if non-Russian oil were offloaded from tankers in the Polish port of Gdansk and fed into the Druzhba pipeline from there.

But Poland is opposed.

They say they don't want to work with the Russians.

Despite trusteeship, the PCK refinery is still mostly in Russian hands via the Rosneft oil company.

In addition, the Polish oil company Orlen would like to take over shares in PCK.

This in turn is viewed critically in Germany because of possible hydrogen plans for the Schwedt site.

Deliveries from Kazakhstan should finally remedy the situation.

But there is still no reliable supply for Schwedt.

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Photo: ADAC

The oil products embargo from Sunday makes a solution even more urgent.

The mineral oil industry association en2x does not expect a supply gap, since more diesel, petrol and heating oil are expected to be transported to Schwedt by rail.

But that has its price, says association spokesman

Alexander von Gersdorff


"The lower production in the east is compensated for by additional product transport, which represents an additional expense."

Refueling in East Germany is already more expensive than the national average.

How hard have oil sanctions hit Russia's economy so far?

The oil sanctions have contributed to Russian oil depreciating massively and the Kremlin having to accept discounts.

Russia's main crude, Urals, which was mainly exported to Europe, is trading at a discount of around $40 a barrel to other crudes like Brent, according to Argus Media.

As a result, Russia loses important revenues.

But due to the generally high price level for oil and the minor impairments caused by the oil price cap, Russia has been able to cope well with this so far.

According to the IMF, the Russian economy shrank less than expected in 2022 (GDP: -2.2 percent).

For 2023, the IMF even expects slight positive growth (+0.3 percent).

with news agencies

Source: spiegel

All news articles on 2023-02-03

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