The Russian government has largely banned the export of fuels such as gasoline and diesel. Prime Minister Mikhail Mishustin’s order referred to a temporary measure but did not specify a deadline as to its end.
The German financial paper Handelsblatt reports that the government in Moscow further announced, that the aim of the measure is to reduce domestic fuel prices. “The temporary restrictions will help saturate the fuel market, which will subsequently allow prices to be reduced for consumers,”
The ban will also allow several Russian refineries the opportunity to undergo overdue maintenance.
The state news agency Interfax also reported that the measure only provides for a few exceptions, State-agreed deliveries in the Eurasian Economic Union, which is dominated by Moscow, are not affected by the order.
The latest announcement from Moscow is bad news for consumers in Europe: they will have to prepare for higher prices at the pump. The measure is likely to further aggravate the already tense supply situation for diesel.
Russia is one of the world’s most important exporters of crude oil products – despite all the sanctions against the country’s oil industry . Recently, countries that do not participate in the embargoes of the G7 industrialized countries and the EU, such as India and Turkey, increased their imports from Russia. This also includes oil-rich countries such as Saudi Arabia , which in turn exported more to Europe. These quantities are now no longer available – at least in the short-term.
A lack of refinery capacity outside of Russia has already caused diesel to become significantly more expensive than crude oil in recent weeks. The International Energy Agency (IEA) noted in its September oil market report that refineries have recently been unable to meet strong demand. As a result, refining margins rose to an eight-month high at the end of August, according to the IEA.
There is currently strong demand and limited supply. The IEA expects a daily supply deficit of 1.24 million barrels in the second half of the year. Both Saudi Arabia and Russia announced earlier this month that they would extend their funding cuts until the end of the year.
Further rising fuel prices, particularly that of diesel threaten an already deeply troubled European economy with further systemic problems. After all, trucks, locomotives, farming equipment, and basically anything of significance that underwrites our economies and well-being run on nothing other than diesel.
That the prognosis is dim is not some kind of fetish on my part – but increasingly, part of the mainstream literature, the latest of which is a newly released paper by the Swiss National Bank which concludes and I quote verbatim:
The adverse effects are likely to unfold over the coming years and become much stronger, particularly with regard to the impact on real economic activity… In one to two years, this effect is likely to be approximately twice as large.