Expert explains how Trump’s decision on Russian diesel could affect global prices and Central Asia
US President Donald Trump‘s decision to temporarily lift sanctions on Russian diesel exports could increase revenues for Russian oil companies but is unlikely to bring about a significant decline in global fuel prices.
For Central Asian countries, the removal of restrictions is not expected to substantially affect supply volumes from Russia.
Alexey Belogoryev, Director of Research at the Institute of Energy and Finance, discussed the implications in an interview with Kursiv Uzbekistan.
How do you assess the agreements between Russia and the US on Russian diesel supplies? How realistic are the announced volumes and could they have a noticeable impact on global diesel prices?
Everyone in the oil market has become accustomed to Donald Trump making bold announcements that are followed by little or no action.
For now, it is unclear whether the announced deal will have any effect on the actual balance of supply and demand in international trade. The proposed gradual increase in Russian exports reflects the natural timetable for their recovery as domestic demand begins its seasonal decline.
In recent weeks, Russian refineries have been on the verge of running out of storage capacity because production has exceeded domestic demand. We do not know exactly by how much, but unlike petrol, there is a clear surplus of diesel fuel.
Despite the ban, some exports continued in previous weeks and months, at least to Central Asia and Mongolia. So this deal required no additional effort from Russia.
On the other hand, the genuinely important step for the market, although primarily for Russian companies, is the six-month easing of sanctions on Russian diesel exports. However, this will have no effect on market demand for Russian fuel.
Even under the sanctions, Russian diesel was selling well in Africa, Latin America, Turkey and, to some extent, Asia. Given the current shortage, caused mainly by the crisis in the Persian Gulf, I do not think anyone questions the demand for Russian exports.
However, easing sanctions increases Russian companies’ revenues by reducing transport, insurance, payment processing and other costs associated with circumventing sanctions.
These are not astronomical profits, but we are probably talking about tens of millions of dollars in additional revenue.
In any case, this agreement makes exports more attractive. It could also lead to higher purchase prices because Russian companies will have access to more potential markets. The threat of US secondary sanctions is a significant deterrent to imports of Russian goods, including petroleum products.
Again, easing sanctions has almost no effect on the actual market balance. What matters for global diesel price movements is the balance between supply and demand, not how profits are distributed.
Under normal circumstances, Russia exports around three million tonnes of diesel fuel a month, sometimes even more, or approximately 40 million tonnes a year. That accounts for around 10% of global trade.
In theory, individual tankers carrying Russian diesel could arrive in the US. This has happened occasionally in the past, but it is more a consequence of the complex logistics within the US itself.
It is a large country with a complicated geographical distribution of supply and demand for petroleum products. For some regions, importing diesel can occasionally be cheaper than paying to transport it domestically.
However, this does not change the fact that the US is the world’s largest diesel exporter, with a market share of around 15%, while Russia ranks second. From the perspective of its domestic supply balance, the US does not need Russian diesel at all.
Trump’s main objective is to bring down global diesel prices, reduce the export parity price, in other words, make exports less attractive and thereby influence domestic prices in the US. It is important to note that there is no physical shortage of diesel in the US, nor has there been one.
Rising prices in the US are driven by the alternative of exporting fuel rather than by a lack of physical supplies. However, I have serious doubts that the announced terms of the «deal» will actually lead to lower prices.
Some adjustment is possible, but as noted earlier, Russia normally exports three million tonnes a month, whereas the current figures are 300,000 tonnes and half a million tonnes in November, excluding overland exports.
Meanwhile, the estimated market shortage stands at six to seven million tonnes. The changes in October and November will not go unnoticed, but they will certainly not be the decisive factor.
What will change for the global market if Russia’s restrictions on diesel exports are lifted? How significant are the additional volumes, considering the current shortage of petroleum products and damage to Russian refineries?
On a global scale, three factors could contribute to lower prices.
The first is a reduction in demand. However, in many regions, including Europe, this reduction will be relatively small over the coming months. Despite the seasonal decline in diesel consumption in transport, demand for liquid heating fuels, particularly gasoil used for heating, is increasing.
This means an overall rise in demand for middle distillates, which include diesel fuel. Demand will therefore remain relatively high over the next few months, at least until the end of December.
The second factor is the reopening of the Strait of Hormuz and the broader removal of restrictions on supplies from the Persian Gulf. This is the key factor behind the current crisis.
However, as we can see, the Trump administration has so far been unable to resolve this problem, and the outlook remains uncertain.
In September and early October, we saw a rapid recovery in crude oil shipments through various grey-market arrangements. Firstly, however, this recovery is unstable and carries significant risks.
More importantly, there has been no comparable recovery in diesel shipments. Exporting diesel from the Persian Gulf is considerably more complicated than exporting crude oil.
The third factor is the full recovery of Russian exports. However, this depends directly on whether damaging strikes against Russian oil refineries continue.
So far, there are no clear signs that Ukraine intends to stop these attacks. Trump announced some form of energy ceasefire between Russia and Ukraine, but the statement appeared to cause confusion in both countries.
This is at least the second announcement of its kind by Trump, and it is far from clear whether it will be implemented.
As long as the strikes continue, diesel production will remain significantly below normal levels and partial export restrictions will have to remain in place.
A full recovery in Russian exports will probably take several months. At the same time, spot market prices reflect traders’ expectations for one month ahead, or two months at most.
What are the prospects for Russian diesel exports to Central Asia amid changes in Russia’s export policy? Could the region receive more fuel or might supplies instead be redirected to more profitable foreign markets?
Russia’s ban on diesel exports does not apply to supplies covered by intergovernmental agreements, including those with Central Asian countries. Therefore, formally, there were no restrictions on such deliveries.
In July, exports had to be reduced to stabilise Russia’s domestic market, but they largely recovered in August and September. Supplies to some countries even increased significantly.
The lifting of the ban could lead to a slight increase in deliveries compared with September, but overall volumes are already high.
The lifting of the ban primarily concerns seaborne shipments, which are what interest Donald Trump. Overland supplies from Russia to Mongolia and Central Asia are not particularly significant for international trade or global diesel prices.
However, the partial removal of restrictions on these supplies confirms that Russia has a diesel surplus. Consequently, deliveries under intergovernmental agreements should comply with bilateral arrangements over the coming months.
Could the resumption of large-scale Russian diesel exports to the global market reduce availability or push up prices in Central Asia? How dependent are Uzbekistan, Kazakhstan, Kyrgyzstan and Tajikistan on the export policies of Russian oil refineries?
In terms of the physical volumes exported to countries in the region, I do not expect any fundamental changes.
Wholesale prices on the St Petersburg International Mercantile Exchange could rise. Even a partial reopening of exports will put upward pressure on domestic wholesale prices in Russia.
However, this pressure will be restrained by government measures. The authorities have various tools at their disposal, including the proposed moratorium on suspending fuel damper payments, antimonopoly regulation and the threat of new export bans.
Therefore, prices will not rise uncontrollably, although some increases are possible. These could particularly affect contracts linked to price benchmarks on the St Petersburg exchange.
Kyrgyzstan and Tajikistan are the most dependent on supplies from Russia. Uzbekistan ranks third, while Kazakhstan is the least dependent, as it largely meets its own fuel needs.
The impact of Russia’s fuel crisis differs from country to country.
However, I would reiterate that intergovernmental agreements are in place, meaning there are state-level guarantees for supplies.
Therefore, the partial lifting of the ban on seaborne diesel exports will have no effect on the stability of Russian diesel supplies to Asian countries.
