The latest wave of Western sanctions against Russian energy exports is aimed at hitting Moscow harder than its previous actions over the war in Ukraine.
An EU ban on Russian oil products — including diesel, gasoline and jet fuel — came into force on Sunday, along with G7 price caps on the same products.
It extended the EU’s seaborne oil embargo imposed two months ago – when it also set a $60-a-barrel cap with its G7 partners for worldwide exports.
There are two levels of price caps: $100 per barrel for more expensive fuels such as diesel, and $45 for lower-quality products such as fuel oil.
“The restrictions and ban on Russian oil products are likely to have a more severe impact than similar measures targeting crude oil in December,” said PVM Energy analyst Steven Brenak.
“Unlike crude oil exports, there are no available markets to place excess fuel.”
Before the conflict, the 27-nation European Union was the main buyer of Russian diesel fuel, consuming nearly 700,000 barrels per day (bpd), or half of imports of the product.
Despite a sharp drop over the past year, more than a quarter of EU diesel imports came from Russia in the first few weeks of the year, according to S&P Global.
This averaged 450,000 barrels per day.
Moscow will be forced to find new markets for its oil products in order to keep the revenues that help finance its war in Ukraine.
The most obvious candidates are the Asian superpowers China and India.
“China and India … have become the largest buyers of Russian oil in recent months. However, the same voracious appetite for oil will not apply to its petroleum products,” Brenak said.
“Both countries are net exporters of products and have a lot of excess refining capacity — so they don’t need to import more.”
Moscow’s only other option may be to refine the fuel less, but that would likely lead to a drop in oil production.
Industrially developed G7 countries and Australia reached an agreement on limiting the prices of Russian oil products on Friday.
The policy aims to “prevent Russia from profiting from its aggressive war against Ukraine” and support stability in energy markets, the G7 statement said.
Commerzbank analyst Carsten Fritsch added that Russian diesel is already being sold below the limit price, with deliveries to the Baltic Sea costing just $90 a barrel last week.
Last week, Moscow banned the sale of Russian oil to countries using the G7 cap, warning that the measures would destabilize global markets.
But oil prices remained broadly unchanged on Monday.
The head of the European Commission, Ursula von der Leyen, believes that limiting oil prices costs Moscow 160 million euros ($170 million) a day.
However, since the beginning of the war, Russia has earned 194 billion euros from the export of oil and oil products, according to the analytical center of the Center for Energy and Clean Air Research (CREA).
According to CREA, this includes almost €85 billion from EU countries.