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Russia has lifted a ban on diesel exports that had threatened to tighten global supplies of the crucial industrial fuel and raised concerns that Moscow was shifting its energy war to the oil market.
Moscow said in a statement on Friday that seaborne exports could resume as long as manufacturers sent half of the diesel they produce to the domestic market, roughly the historical norm. The Kremlin had said it had imposed the ban because of domestic shortages.
The move on Friday triggered a sell-off in diesel markets with prices in Europe falling more than 3 per cent, as fears over shortages eased. Prices had initially surged when the ban was brought in two weeks ago, although they had already slipped lower amid a wider decline in energy markets.
The US National Security Council had described the ban as further evidence that “Russia is not a reliable energy supplier”, with the move being introduced when oil prices looked like they could move above a $100 a barrel for the first time this year.
Rising fuel costs have already become an election issue in the US, with Republican candidates for next year’s presidential election attacking the Biden administration over rising fuel prices. Republican frontrunner Donald Trump has accused the administration of neglecting the domestic oil industry.
But if the move by the Kremlin was designed to sow fear in international energy markets the price reaction suggests it had only limited success. Brent crude has slipped back towards $83 a barrel in the past two weeks dragging diesel lower with it, as traders have focused on wider threats to the global economy and a possible slow down in oil demand.
Diesel is the workhorse fuel of the global economy, playing a crucial role in freight, shipping and aviation. Derivatives of diesel, such as heating oil, are particularly susceptible to winter price surges. But it is also sensitive to signs of slowing industrial output.
Concerns remain that Russian president Vladimir Putin will try to use Russia’s clout in the oil market to influence the US election, with Trump having indicated he would try to force Ukraine to negotiate with Moscow.
Russia is already reducing crude supplies as part of a pact with Saudi Arabia and the wider Opec+ group, which helped propel oil higher over the summer. Rising oil prices were seen as having the potential to boost inflation, which central banks have been trying to bring under control.
Moscow blamed local shortages when it imposed the ban on diesel and gasoline exports last month, after cutting the amount of subsidies it provides to Russian oil companies for selling cut-price fuel domestically.
The ban was seen by some analysts as a warning shot to Russia’s oil companies to make sure domestic prices do not rise too much, with Putin facing his own election next year.
The Kremlin had described the ban as “temporary” when it was introduced, but gave no timeframe for when the measures would end.
Restrictions on gasoline exports, which Russia is a far smaller exporter of, remain in place.
The EU and US have largely banned imports of Russian refined fuel since February, forcing Moscow to reroute its sales to Turkey and countries in north Africa and Latin America.
The G7 advanced economies have also tried to impose a price cap on Russian oil sales, while western countries have increased diesel imports from India and the Middle East.
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