The entry into force of the European embargo on marine supplies of oil products from Russia on February 5 will have a great impact on both the Russian Federation and Western countries. Europe will face rising prices for diesel fuel and may fall into a new round of inflation, says Nikolay Vavilov, a specialist in the strategic research department at Total Research. I told Izvestia about this on January 26.
According to him, until February last year, the lion’s share of the fuel in the European Union (EU) was supplied from Russia – about 600,000 barrels per day.
“The situation has not changed much in 2022, and in anticipation of the embargo, European countries are increasing purchases of petroleum products, seeking to replenish stocks. Russia accounts for about 25% of diesel fuel imports to the EU countries, Norway, Switzerland and the UK,” he specified.
The expert added that the St. Petersburg International Commodity and Raw Materials Exchange notes record volumes of trading in petroleum products for all time. Also, as previously reported, India is increasing the volume of purchases of Russian oil, after which it processes it into diesel fuel and sells it to Europe. Such a scheme does not contradict the embargo mechanism and the price ceiling, since the restrictions do not affect oil and oil products processed in another jurisdiction, Vavilov explained.
“Europe is highly dependent on imported processed raw materials, as For decades, the bloc’s green agenda has called for an end to polluting production, and the resulting lack of investment has led to a shortage of refineries in the region. Now in Europe, the volume of deliveries of diesel fuel from the Middle East and the United States, as well as India, is growing,” he said, adding that at the same time, Russian products are sent to customers in Africa, Latin America and Asia.
Vavilov believes that after the entry into force of the embargo, the production of petroleum products in Russia may decline, but oil sales will increase, since India and China are themselves exporters of petroleum products and have impressive capacities for oil refining. Russia will be able to redirect part of the volumes to other countries and will probably develop domestic consumption, the expert added.
“Europe will fall into the circulation of oil in the world. India will buy oil in Russia, refine and sell to the EU. In fact, these are all the same Russian oil products, only now they will make a long logistical detour, which will inevitably lead to an increase in prices for the final product. As a result, there is a situation that there will be no shortage of fuel, but prices will still grow due to extended logistics and accelerate inflation again, ”concluded Vavilov.
Earlier, on January 16, Deputy Director of the International Institute of Energy Policy and Diplomacy of MGIMO Igbal Guliyev also expressed the opinion that after the embargo comes into force, India and China can become the leading suppliers of diesel fuel to Europe. At the same time, he believes that a strong rise in the price of diesel fuel in the European market will not be observed.
Before that, on December 5, an embargo on oil supplied by sea from Russia to the EU came into force. The EU countries have set an adjustable ceiling on the cost of seaborne oil from Russia at $60 per barrel.
On December 27, Russian President Vladimir Putin signed a decree on retaliatory measures, according to which the supply of oil and oil products to foreign legal entities and individuals is prohibited, provided that the contracts for these supplies directly or indirectly provide for the use of a price fixing mechanism.
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