Europe, G7, Others, To Place Cap On Russia's Oil Export

In an effort to penalise Russia for its invasion of Ukraine, the European Union, the G-7, and its allies are now preparing to impose caps on Russian refined product exports by February 5.

The EU embargo also exempts Russian maritime crude oil and product exports to Bulgaria until the end of 2024, as well as exports of vacuum gasoil to Croatia until the end of 2023.

Similar restrictions already apply to the nation's crude shipments, but some observers of the oil market are concerned that the cap and ban on refined fuels, particularly diesel, could lead to price increases.

With only a few weeks left, severe sanctions will be imposed on this previously unheard-of portion of the global diesel industry, the engine of the world economy.

Russia was Europe's top foreign supplier of fuel prior to its invasion of Ukraine, and the continent has kept its large-scale purchases of the fuel up until the shutdown.

Because of this, the sanctions are probably going to cause a significant rerouting of global diesel flows, helped along by Russia's new crude purchasers who are sending fuel back to Europe.

About 600,000 barrels a day of diesel imports to the European Union will need to be replaced, and Russia will need to find new customers for those supplies, store the fuel on ships, or reduce production at its refineries.

As they create more than they consume and can export their surplus, the US and India have already seen an increase in shipments into the EU.

More petroleum is anticipated to be shipped from China into its neighbouring markets, which will obliquely drive cargo from other suppliers toward Europe.

After sanctions on Russia looked to reroute exports rather than limit them, crude prices fell.