Russia bans diesel exports after Ukrainian drone attacks hit refineries

Russia's temporary diesel export ban has pushed global fuel prices to multi-year highs, adding fresh pressure to energy markets already disrupted by the Iran war

Russia announced a short-term ban on diesel exports, causing global prices for the fuel to surge to multi-year highs, as a wave of Ukrainian drone attacks leads to domestic shortages. 

The decision could further squeeze global fuel markets, which are already under pressure due to the supply disruption caused by the Iran war. Last year, Russia accounted for about 11% of global supplies of diesel, according to data compiled by Bloomberg from analytics firm Vortexa Ltd. The ban will only be in place for about three weeks. 

The Iran war already restricted how much fuel came out of the Persian Gulf and meant refineries outside of the region also had less crude to process because it led to the blockage of the Strait of Hormuz, the world’s top oil corridor. 

 

Russian exports of the fuel were previously banned only for traders and other sellers in the country that don’t make their own fuel. Russia is the world’s No. 2 diesel exporter, after the US, according to Vortexa. 

“Today we introduced ban on exports of diesel,” Deputy Prime Minister Alexander Novak said at the government’s meeting with President Vladimir Putin. “That will allow us to increase supplies to domestic market.” 

The ban, which excludes shipments under intergovernmental agreements, will remain in force until July 31, according to a government statement, published after the meeting. 

The premium of benchmark European diesel futures over crude oil — a key measure of market strength — surged past $60 a barrel on Wednesday, the highest it’s been since at least 2011, fair value data compiled by Bloomberg show. 

The ban comes on top of existing restrictions on most shipments of gasoline and jet fuel. Russia has been struggling to ensure domestic oil-product supplies and to contain prices at the pump after drone attacks damaged several key refineries. 

Ukraine’s intensified strikes pushed Russia’s crude-processing rates to multi-year lows. Even as Russia increased utilization rate of operating refineries to maximum levels, used reserves to increase supplies to the domestic market, shortened maintenance repairs and delayed scheduled maintenance, “the situation remains challenging,” Novak said. 

Many regions across the country have been forced to impose some degree of fuel rationing because of the disruptions. 

Starting this month Russia will start importing petroleum products and produce additional volumes of fuel of lower environmental class, according to Novak. The government has also extended zero import duties for petroleum products for another year.

 

Russia’s average retail diesel prices increased 3.4% week-on-week to 87.76 rubles ($1.15) a liter in the June 30 to July 6 period, according to data from the Federal Statistics Service released Wednesday. That’s the biggest weekly increase since December 2010, historic data show. 

Even before the ban, Russia’s diesel and gasoil exports were dropping significantly. The nation’s June shipments more than halved from a year earlier, while exports in the first five days of July showed little sign of a major recovery, Vortexa data show.