Europe is ready for embargo on Russian petroleum products, but Kremlin can re-export fuel via third countries

February 02, 2023

An embargo on Russian gasoline and diesel fuel will not cause a fuel crisis in the EU or Ukraine. However, now there is a lot of Russian fuel on the European market sold under certificates of third countries.

On February 5, the EU embargo on Russian petroleum products came into effect. At the same time, the G7 countries agreed on a price cap on Russian gasoline and diesel fuel. The price cap on Russian diesel fuel sold to third countries may be set at a level of USD100-110 per barrel, and on cheaper products such as fuel oil – USD45 per barrel.

Europe has long been one of the key markets for Russia's oil refining industry, so the loss of this market will hit not only the Kremlin's oil and gas revenues but also the country's oil refining industry. Due to the fuel embargo, the Russians will reduce oil refining and have to export more crude oil. To mitigate the blow of sanctions, Russia may try to redirect its exports of petroleum products to countries such as Turkey or China, or to preserve a share of supplies to the EU using re-export schemes. At the same time, countries such as India, which has a powerful oil refining industry and buys Russian oil at a large discount, can try to occupy a market niche and offer its fuel to the EU at a relatively good price. 

Anticipating the embargo, European and Ukrainian traders made significant fuel reserves. Therefore, the ban on Russian diesel fuel imports to the EU will not be a disaster for the European fuel market. However, there may be some local shortages, which will lead to restructuring of logistics on the European fuel market.

After the beginning of the war Ukraine completely reformatted its fuel market and now imports almost all its fuel from the EU. At the same time, a large amount of Russian fuel reaches us from third countries under re-export schemes. The closure of the European market for Russian diesel fuel and restructuring of logistics in February may coincide with purchases of fuel by farmers for sowing. This, in turn, may lead to an increase in both wholesale and retail fuel prices in Ukraine.

There are no prerequisites for a fuel crisis in the EU and Ukraine

Razumkov Centre expert Maksym Bielawski says that investors in the European Union do not expect a crisis or deterioration of economic indicators in Europe now due to the embargo on Russian petroleum products. And the sentiments of large industrial enterprises, investors, banks and funds indicate that the EU recovers from the industrial stagnation caused by the energy crisis.

"In general, there are enough resources on the market of the European Union to cover the needs of the EU countries and Ukraine. The EU is ready, even the current exchange rate of the euro against the dollar indicates that the European currency is strengthening. Holders of futures contracts on the EU market do not believe in a crisis," the expert says. 

According to him, in the first few days after the introduction of the embargo on the EU retail market, prices may fluctuate due to speculations by market players.

"I do not rule out that immediately after the introduction of the embargo, the Russians may resort to information and psychological special operations in order to provoke price volatility and somewhat destabilise Europe. Fuel prices affect the cost of logistics, including food. Of course, there will be no price shock. There will be an attempt to manipulate, there will be an attempt to destabilise the situation. Therefore, the main thing is not to panic," Mr. Bielawski says.

He notes that business in the EU is ready for the embargo, and the European Union market has enough resources to cover the needs of the EU countries and Ukraine.

Oleksandr Sirenko, an analyst of the NaftoRynok specialisesd publication, says that in anticipation of the embargo on Russian petroleum products, European business has made quite significant reserves.

"European traders made significant stocks, including of Russian diesel fuel, and transported the resource to their depots. Until these reserves are used up, fuel prices are expected to fall. When will they be over? Opinions differ: someone says that until the beginning of March, others say, the resources are so plentiful that they will be enough until the end of March. Again, all available depots in Europe are full, including those of Ukrainian traders," says Sirenko.

He notes that after Europe runs out of reserves, Russian petroleum products will be replaced with fuel from previously unpopular sources, such as India. From there, petroleum products were brought to the EU during strikes of the French oil refining industry workers. 

"India has the world's largest Jamnagar Oil Refinery, producing 20-25 million tons of diesel fuel a year. This is crazy, and there are many refineries in India. So, this line of supply will start replacing supplies from Russia in the spring," says Sirenko.

He notes that the EU may soon put an end to Russian revenues from trade in liquefied gas. In January, cheap Russian autogas ruined the markets of EU countries and Ukraine. Although there are no problems with the availability of this resource yet, the surplus of propane-butane production in the world remains close to 16 million tons per year, this type of fuel is not as obvious to European officials as gasoline and diesel fuel, which allows Russian companies to make money from its sale in Europe.



Maksym Bielawski

Leading Expert, Energy Programmes

Born in 1986 in Zhytomyr oblast


Zhytomyr State Technological University (2008)

Ph.D in Technical Science (2010)

Ivano-Frankivsk National Technical University of Oil and Gas (2012)

Author of 17 patents and 100 scientific works

Work Experience:

2008 – 2011 — Operator of Gas Infrastructure Units, Controller of Gas Transmission System in Rivne Division of PJSC "Ukrtransgas"

2011 – 2017 — Leading Engineer, Deputy Head of Press-Service, Head of Public Relation Department of PJSC "Ukrtransgas"

2017 – 2018 — HR Director of PJSC "Maine Gas Pipelines of Ukraine", Advisor to the Minister of Energy and Coal Industry of Ukraine

2021 — Director of Integrated Communications of NJSC "Naftogaz of Ukraine"