The EU made two exceptions to the price ceiling for Russian oil products

The European Union, which has imposed an embargo on the import of petroleum products from RUSSIA and a price ceiling on them, has provided for two exceptions. The restrictions do not apply to products made from Russian oil abroad,

The embargo on the supply of petroleum products from Russia and its price ceiling for third countries ($100 per barrel for light petroleum products, including diesel fuel and gasoline, and $40 for dark ones), which came into effect on February 5, does not apply to petroleum products that are produced from Russian oil abroad. This is stated in the explanations of the European Commission, published on its website.

The price ceiling will not apply in the case of mixing oil products from Russia with oil products of non-Russian origin, leading to the appearance of goods with a different customs code, the European Commission notes. This means that such oil products can be sold without taking into account price restrictions, and European providers, accordingly, can freely provide services for their insurance and transportation.

According to the International Energy Agency, the EXPORT of oil products from Russia in 2022 amounted to 2.85 million barrels. per day (about 142 million tons for the entire year), of which the EU accounted for 1.2 million barrels. per day. Russia provided about 40% of EU imports, and it is difficult for European countries to immediately abandon Russian raw materials.

Why exceptions were needed

The EU has long been heavily dependent on imports of Russian oil products, analysts at HSBC bank said in a January report. In 2021–2022, about half of European diesel imports came from Russia.

Before the embargo went into effect, EU companies ramped up purchases in an effort to replenish stocks. In December 2022, EU diesel imports from Russia peaked at 0.7 million bbl. in a day. Now Europe has to replace these volumes.

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In the summer of 2022, the European Commission banned the import of oil from Russia in its pure form (the ban was introduced from June with a transitional period until December 5, 2022), as well as in mixtures - the so-called blends, the use of which is quite popular in Europe. At the same time, the EU allowed the import of petroleum products produced from Russian oil at foreign refineries into its territory, but at that time a price ceiling had not yet been introduced. This mechanism assumes that buyers from third countries must agree to buy them at a price not exceeding the established limit, or accept the fact that the West will completely prohibit its companies from transporting and insuring these raw materials. The new clarifications state that the mechanism will not apply to oil products from Russian oil produced in third countries or using blends.

Who benefits from this

In anticipation of the entry into force of the EU embargo, European importers and suppliers from a number of countries friendly or neutral to Russia began to restructure supply chains in advance. India, CHINA and Turkey have significantly increased their crude oil imports from Russia in 2022. For example, according to Argus Media, India increased its purchases of the Russian benchmark grade Urals from zero in early 2022 to more than 40% of its total offshore shipments by early autumn. As a result, by December 2022, Asia's share in Russian oil purchases almost doubled, exceeding 80%.

The same three countries have increased the supply of petroleum products to the European market. Thus, according to the European statistical service Eurostat, in March-November 2022, imports of petroleum products from China to the EU increased by 2.3 times compared to the same period of the previous year (up to 1.6 million tons), from India - by 14%. (up to 4.25 million tons), from Turkey - by 6% (up to 1.5 million tons). In addition, the import of petroleum products from Singapore almost tripled (to 1.6 million tons). BLOOMBERG called Singapore a hub for the re-export of Russian oil and oil products through mixing them with other grades.

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Another source for the replacement of Russian oil products in Europe is the Middle East. The UAE plans to increase diesel supplies to France and Germany by 100 thousand barrels. per day in 2023, and Kuwait by 50,000 barrels per day, as well as doubling the export of aviation fuel.

The Economist Intelligence Unit expects this trend to continue - Russia will send more barrels to China, India, the Middle East and Africa, and Europe will increase the import of oil and petroleum products from the same India, China, the Middle East countries and the United States , analyst Matthew told CNBC Sherwood. However, given the longer routes of such replacement supplies, the cost of this type of fuel for Europeans could rise, analysts at HSBC warned.

In October 2022, India ranked third among the suppliers of petroleum products to the European Union after Russia and Saudi Arabia, selling fuel to European countries for $1 billion (more than 1 million tons per month). “I wouldn't be surprised if refiners in India increase their diesel exports to Europe,” said Sumit Ritoliya, senior oil analyst at S&P Global.

India's role in the world oil market continues to grow against the background of the entry into force of the Western embargo and the price ceiling on Russian oil products, Bloomberg reported on February 5. In January 2023, the country supplied 172 thousand barrels of oil to Europe daily. diesel fuel with a low sulfur content, which is the maximum since October 2021 and replaces about 25% of supplies from Russia, follows from data from Kpler analysts.

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The co-owner of the second largest refinery in India, Nayara Energy, is the Russian Rosneft (owns 49.13%), another 24.565% belongs to Ilya Shcherbovich's UCP fund. At the beginning of January 2023, the international trader Trafigura sold a stake in this plant after he left another joint project with Rosneft. An increase in the supply of raw materials to this plant will depend on efficiency, Igor Sechin, HEAD of Rosneft, told reporters on September 6 during the India Energy Week conference in Bangalore. “Everything depends on efficiency. There is transport, there is insurance, bank rates. We can deliver not only from Russia to Nayara, if that makes sense. Well, of course, it is necessary to load as much as possible, ”he said (quote from Interfax).