With winter approaching in the Northern Hemisphere and global diesel markets declining, Russia has banned the export of fuel used in transportation, heating and industrial processes. While many analysts expect the shortfall to be temporary, others see Moscow as using energy as a weapon.
The new restrictions imposed by Moscow covering all types of diesel, including heavy distillates such as diesel fuel, came into effect on September 21, without setting a deadline.
The significance of the ban lies in the fact that Russia is the world's largest exporter of seaborne diesel, just ahead of the United States.
On the face of it, the ban will have little impact on Ukraine-backing Western countries vis-à-vis Russia, as traditional buyers in Europe have stopped buying from Russia and switched to other markets such as Turkey, Brazil and Saudi Arabia.
But global oil markets affect each other, and the loss of such a large source of supply for a long time is not easy, and even Russia itself may not be able to afford its consequences.
The impact of the diesel ban depends heavily on its timing, which comes as summer comes to an end and a focus on winter fuel begins. Diesel fuel is important for heating in parts of Europe, especially Germany, and is the primary fuel used to transport goods by road, making it vital in supply chains.
The Russian ban also comes days after Russia and Saudi Arabia, the world's two largest crude oil producers, decided to continue cutting their daily crude production by 1.3 million barrels until the end of this year.
There are domestic Russian reasons for banning exports, as Russia grapples with high domestic fuel prices that have contributed to higher inflation. Russia's war on Ukraine is also increasing consumption. In addition, fuel supplies were disrupted due to seasonal maintenance at Russian refineries.
A Russian official, speaking on condition of anonymity, was quoted as saying the ban would continue until a new market mechanism is put in place to regulate domestic fuel supplies.
Russian refiners earn much more from exporting diesel than from supplying the domestic market, and high global prices provide an additional incentive to export rather than market locally.
Russia expects to produce more than 90 million tonnes of fuel this year — equivalent to about 1.9 million bpd — consuming only 40 million tonnes of the total and the rest for export.
A person familiar with the situation said extending the measure beyond early October would hurt the Russian oil industry, as Russian refiners would need to reduce their operations to avoid overstockpiling as free storage runs out. That person said that makes it possible to end the ban in early October.
A prolonged ban on diesel and gasoline exports would not be in Russia's interest, according to Citigroup analysts, as it could force refineries to scale back operations, leading to lower crude oil production during the winter.
Citigroup analysts said domestic demand for diesel in Russia is set to peak over the next five weeks, before slowing in November and then falling in December. This is likely to set a six-week upper limit on the ban.