Europe has completely ignored the December crude oil embargo, perhaps because Putin is not yet interested in oil price retaliation.
At the moment, the G7 price limit for global sales in Russia works like clockwork. Urals crude is traded at a $46 discount on Asian markets. Comparable futures for Brent crude are closer to $86.
The Kremlin has been unable to muster enough “shadow fleet” to escape the West’s stranglehold on tankers and insurance companies. Finally, he lacks income. There is no decent domestic bond market to finance wartime borrowing, so the budget deficit is starting to choke his regime.
However, the upcoming ban on diesel fuel and refined petroleum products is more dangerous for Europe. These fuels are more difficult to replace. There is no equivalent to the International Energy Agency’s rule on minimum stocks of crude oil: a 90-day supply in each member country.
“Europe has a large “net deficit” in refined products. It has too much gasoline and not enough diesel fuel. This is a historical discrepancy,” said David Fife, former IEA oil guru and now chief economist at energy group Argus.
“It needs to import three million barrels a day, and it gets a third of that from Russia. How to find a million barrels of diesel per day? That’s where the pinch point is. We can see a big deficit,” he said.
The market is already under stress. The diesel spread over crude oil prices topped $45 in Europe earlier this month. “That’s five times the norm,” he said.
The lack of refining capacity is another fundamental failure of European energy policy and strategic thinking. The region actively encouraged drivers to switch to diesel vehicles through tax incentives. This increased the percentage of sales from 10% in 1990 to about 60% by 2015 when it was revealed that Volkswagen and others had falsified emissions tests.
Whether this switch ever made sense is debatable. Academic scientists are wondering if these vehicles are actually delivering on the promised reductions in CO2 emissions, not to mention the known risks of toxic particles in cities.
This diverted efforts from direct injection technology, which by now could lead to much more efficient gasoline engines. This created a powerful self-interest with sunk costs that were determined to block the transition to hybrids and electric powertrains.
As a result, there are 22 million diesel cars on the roads of France today, and they are largely concentrated among poorer households, social strata that arose in yellow vests a 2018 protest that threatens to flare up again this year as diesel at a gas station approaches the €2/liter political danger line.
In October, striking French unions attacked oil refineries and damaged millions of drivers. Now they are doing it again as part of an indefinite national uprising against Emmanuel Macron’s pension reform. The strike compliance rate at TotalEnergie’s refineries is between 70 and 100 percent.
