- The forthcoming ban on Russian oil products by the European Union could cause further turmoil in the Kremlin.
- China and India are unlikely to buy refined Russian fuels once sold to the EU, which will ban them on February 5.
- This is in contrast to Russian crude, which was bought up by China and India after Europe avoided those supplies.
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Russia faces fresh sanctions on its energy exports, but this time China and India may not come to President Vladimir Putin’s rescue.
The European Union will ban imports of refined Russian fuels on February 5, complementing its embargo on Russian crude oil shipped by sea, which began in December.
But while China and India are eagerly snapping up discounted stocks of Russian crude that Europe has avoided, they are unlikely to buy refined Russian fuels once sold to the EU.
“Both are net exporters of product, so they don’t need to import anymore,” Viktor Katona, senior crude oil analyst at Kpler, told Insider.
Russian fuels could instead find buyers in Singapore and Fujairah in the United Arab Emirates, and from there migrate to larger Asian markets, but not the big ones, he added.
Russian products could also flow to West Africa and Latin America, while Europe is likely to start sourcing more diesel from the US and Asia in a “round of musical chairs,” Katona said.
China and India produce fuels in their own refineries, which could also supply Europe. In fact, according to the Financial Times, Chinese cargo is already on its way to Latvia, despite the extra time and cost of shipping such distances.
Additionally, a ban on Russian fuel could give both China and India more bargaining power for any supplies they end up buying, according to Morningstar energy and utilities strategist Stephen Ellis.
There is a threat of a price ceiling for Russian fuels on the fuel market. Similar to the oil price cap, the EU and G7 plan to bar other countries from accessing insurance and shipping services unless they comply with a cap on refined products.
EU officials are considering a $100 per barrel cap on Russian diesel and a $45 per barrel cap on Russian heating oil, sources told Bloomberg.
However, Moscow would not be helpless. Russia could refine less fuel but keep oil production steady, which would lead to even more crude oil exports to India and China, Katona said.
The Kremlin could also “weaponize refined products by curbing exports,” Ellis said. This would ultimately lead to lower deliveries for Europe.
“China will likely have to use its own products, reducing Chinese exports of refined products that would otherwise have been available to EU buyers,” he said.