Luikmel says US diesel deal would strain Russia’s domestic supply

A proposed deal to supply additional Russian diesel to the US has puzzled experts. Estonian central bank economist Peeter Luikmel told ERR’s Välisilm programme that Russia faces a severe fuel shortage and that the deal would have little economic or political impact.

Luikmel said Russia had already been forced to restrict fuel exports over the summer and buy diesel from Asia made from oil it had sold to India. With an export ban in place and the country switching to winter diesel, supplying fuel to the US would come at the expense of Russia’s domestic market, he said.

Russia’s diesel export ban had been extended through the end of October. Luikmel said it would be difficult for Russia to sell fuel abroad without affecting its own consumers, unless it bought diesel elsewhere or made significant compromises. He added that Russia’s elections had taken place two months before the US midterm elections, which could make the timing easier for Vladimir Putin, although the Russian election results had offered little suspense.

The deal is unlikely to bring significant relief to US motorists, Luikmel said. At best, it could lower prices by a few cents, while diesel prices at the pump are currently 70 to 80 percent above their usual level.

Luikmel described the move as primarily political and said a US ban on diesel exports shortly before the primaries could amplify its effect. But such a ban could also lead to a gasoline shortage, he warned, because refineries produce diesel and gasoline together. Cutting diesel output could therefore leave the US with excess diesel and too little gasoline.

Luikmel said events in the Persian Gulf and risks to maritime transport were having a greater effect on global fuel supplies than Ukrainian strikes on Russian refineries. He estimated that disruptions in the Gulf had removed about 3 to 5 percent of supply from the world oil market. Attacks and terrorism also raise shipping insurance costs, pushing up crude oil prices and refining margins worldwide.

While oil futures were around $100 a barrel, prices in spot transactions were already near $130, Luikmel said. He added that the supply situation was not yet a catastrophe: about six days’ worth of the world’s roughly 60-day oil reserves had been used since the war began in spring.