Here's why Europe's new Russian fuel sanctions won't cripple Moscow
On Sunday, the European Union imposes an import ban and price cap mechanism on Russian fuel products, such as diesel.
Kpler lead oil analyst Matt Smith said the sanctions likely won't change Russia's overall production volume, but could hit export revenues.
He noted that Africa has seen a recent uptick in imports of Russian oil products ahead of the new ban.
The European Union's next round of sanctions on Russia could hit Moscow's energy revenue, but they are unlikely to weigh on overall production, Matt Smith, lead oil analyst at Kpler, told Insider.
On Sunday, the EU will ban imports of Russian refined oil products, such as diesel, and impose a new price cap, adding to an embargo on seaborne Russian crude that began in December.
Once the new measure kicks in, Smith said one of two things will happen: diesel may be consumed in Africa or diesel exports from Africa to the EU will pick up, suggesting Russian supplies will bypass sanctions and still end up in Europe.
Already, Kpler has observed an uptick in volumes heading to Africa, with nations including Senegal, Morocco, Tunisia, and Libya seeing increased imports.
Smith noted that it's difficult to confirm whether countries are re-exporting Russian diesel as product origins can be muddled by mixing supplies. He expects the new sanctions will play out in a similar way that the EU's crude oil ban has, meaning Russian volumes will not see a meaningful dip as exports are rerouted from Europe to other countries.
"Everything we have seen over the last year tells us not to underestimate that Russia hasn't got this figured out," Smith said.
Meanwhile, a price cap on Russian fuels will also be imposed. Similar to the crude oil price cap, the EU and G7 plan to bar other countries from accessing insurance and shipping services unless they abide by a cap on refined products.
But Smith expects the new price cap to be a moot point, as it will likely be too high to be relevant. There are also too many different products with different prices to justify any single price cap, which will make it harder to implement than previous ceilings.
In addition to diesel, Russia produces a range of other refined products, including jet fuel and fuel oil, requiring separate price caps for each.
Regardless of the price cap, buyers of Russian fuels will likely see discounts when the ban takes effect, Smith predicted.
Discounted oil prices have allowed Russia to maintain strong seaborne crude exports even after the December embargo. While Moscow's energy revenue has fallen, the key point is that neither Russian production nor exports have crashed, Smith noted.
"You have countries, such as India, that's able to purchase Russian crude at a significant discount, and so they do it," he said. "We've seen a number of EU countries taking crude and diesel from Russia over the last year because of the economics, rather than self-sanctioning. Pricing has driven the energy situation with Russia."
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